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New Investor Here - Analyzing Multifamily Properties
Hey everyone!
I'm jumping into the world of multifamily investing and getting overwhelmed with all the analysis involved. I'm browsing online listings and want to understand how to dissect these deals before diving in. Can you experienced investors share some insights on what factors are crucial to analyze and what red flags to watch out for?
Here's what I'm particularly interested in:
- Key factors to analyze a multifamily property: What metrics and data points should I be focusing on to assess the property's potential?
- Red flags to be aware of: Are there any deal-breakers or warning signs I should be looking out for in the listings or during the initial research phase?
- Things to know before investing: Besides the property itself, what other aspects should I consider before committing to a multifamily deal?
Any advice would be greatly appreciated! Thanks in advance for your help.
P.S. If anyone has resources (articles, guides) for analyzing multifamily properties, I'd love to check them out!
Hi Rakesh, if you are serious about learning multifamily and going all-in, then you should get trained. I did coaching at RE Mentor in Boston. David Lindahl's program will teach you everything you need to know and you will succeed if you take it seriously. You can start with reading his books (Multifamily Millions) and go to a local seminar when they are in town. But coaching will be the game changer for you.
Hey @Rakesh Battula! It's equally important to look at location as it is the physical asset. Some things to consider are job growth, population growth, and surrounding school systems. If the location is home to high job and population growth along with great school systems, chances are you are on to something!
Best of luck.
I'm a single family guy, but one part I know a little about is the underwriting.
I don't think you need to know how to underwrite your own deals, but knowing what commercial underwriting looks like and the metrics mean would be a good place I would recommend starting.
I would check out the YouTube channels:
https://www.youtube.com/@BreakIntoCRE
So happy to hear that you are looking to invest in Multifamily. It is the most tested and true investment model. Another thing I want to complement is that you also know what to look at, first thing is to find a local group in your area. Another option is to YouTube and look at different sources on these questions..
Quote from @Tim Ryan:
Hi Rakesh, if you are serious about learning multifamily and going all-in, then you should get trained. I did coaching at RE Mentor in Boston. David Lindahl's program will teach you everything you need to know and you will succeed if you take it seriously. You can start with reading his books (Multifamily Millions) and go to a local seminar when they are in town. But coaching will be the game changer for you.
Thank you for the guidance. I will definitely look into the program.
Quote from @Dimitrius Kiritsis:Thank you for the insights. One thing I am trying to decide is whether to choose the market first and find deals in that market or look for deals and research the growth possibility in the area?
Hey @Rakesh Battula! It's equally important to look at location as it is the physical asset. Some things to consider are job growth, population growth, and surrounding school systems. If the location is home to high job and population growth along with great school systems, chances are you are on to something!
Best of luck.
Quote from @Brian Adams:Thank you for the advice. I will look into learning the basics of commercial underwriting. And thank you for the links, I will go through those videos.
I'm a single family guy, but one part I know a little about is the underwriting.
I don't think you need to know how to underwrite your own deals, but knowing what commercial underwriting looks like and the metrics mean would be a good place I would recommend starting.
I would check out the YouTube channels:
https://www.youtube.com/@BreakIntoCRE
Quote from @Sabine Cedor:Thank you so much. I have been watching some YouTube videos to get myself familiar with this. I have to find some active local groups to expand my network and learning through their experience.
So happy to hear that you are looking to invest in Multifamily. It is the most tested and true investment model. Another thing I want to complement is that you also know what to look at, first thing is to find a local group in your area. Another option is to YouTube and look at different sources on these questions..
Quote from @Dimitrius Kiritsis:
Hey @Rakesh Battula! It's equally important to look at location as it is the physical asset. Some things to consider are job growth, population growth, and surrounding school systems. If the location is home to high job and population growth along with great school systems, chances are you are on to something!
Best of luck.
Dimitrius Kiritsis hit it right on the head, if I had to add anything from my experiences, learn what a CAP rate, NOI ROI is in your, of course you'll need to look at rents for similar size apt units, I say the main thing is knowing how much the property is bringing in and how much is going out. Another thing you should consider is whos' going to finance it and managed it. I know it's a lot all at once but just keeping going
Hi Rakesh, I own 9 doors across a couple midwest markets. They are a mix of multi family and single family. They metrics I look at are rent to price ratio, history of appreciation and potential built in equity. Would be happy to connect and talk more about my investments.
@Rakesh Battula you can pay for programs, pay for coaches, but if you are truly committed you can learn a lot online for free. And you can pay for all the coaching and programs and still not fully understand what steps you need to take and then take them successfully.
It’s not easy. AND unless you partner with a seasoned Real estate investor who has a SREO no lender with consider you. There are no free lunches in this sub-arena.
Best wishes. And as always just my opinion and not written by Ai.
Key factors in analyzing a multifamily deal: The two most sensitive inputs will be your vacancy factor and your cost of capital. A deal could look good assuming 5% vacancy, but bad a 7 or 8% . A deal could look good at 7% interest rate with 25% down, but underperform at 7.5% and 30% down.
Red Flags: Multifamily is valued based on NOI divided by Cap Rate. Trouble is, NOI doesn't factor in capital expenditures. So keep an eye out for any major improvements needed in the first few years of your ownership (roofs, exteriors, HVAC, electrical rewiring, etc)
Things to know before starting: Make sure you buy at a basis in-line or below market comps (on a per unit or rent multiple basis). Sellers and brokers like to pitch value on income and cap rate to make the deal look good. We can fluff the numbers pretty easily. So just make sure you do a sanity check with comps so you know you're not overpaying based on unrealistic underwriting.
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@Rakesh Battula All that being said Biggerpockets has a great calculator for rentals that I always use which has never let me down.
Brandon Turner has a much more detailed calculator that he has created for his mastermind group The Better Life Tribe. Brandons two books on multi family investing are also must reads for any investor.
Other than reading lots of books and listening to podcasts I have had no formal training in dealing with analysis and am doing well just with the biggerpockets calculator.
However if I decide to undertake a large multi family I may consider finding a consultant to help me with the analysis and research. I’m currently doing deals between 6-10 doors.
Quote from @Joseph Bui:Thank you for the inputs. Does good appreciation in the area offset little lower rents in your opinion? Or does it purely my choice of whether I want cash flow or equity build?
Hi Rakesh, I own 9 doors across a couple midwest markets. They are a mix of multi family and single family. They metrics I look at are rent to price ratio, history of appreciation and potential built in equity. Would be happy to connect and talk more about my investments.
Quote from @Lucia Rushton:
@Rakesh Battula you can pay for programs, pay for coaches, but if you are truly committed you can learn a lot online for free. And you can pay for all the coaching and programs and still not fully understand what steps you need to take and then take them successfully.
It’s not easy. AND unless you partner with a seasoned Real estate investor who has a SREO no lender with consider you. There are no free lunches in this sub-arena.
Best wishes. And as always just my opinion and not written by Ai.
Thank you for the inputs. I am trying to learn a little bit more before I can reach out to partner with anyone else. But I will definitely look into that.
Quote from @David Wallace:Thank you this was really helpful. I need to find resources for off market deals or below market deals. The ones I found till now seemed like made up numbers to make it look good.
Key factors in analyzing a multifamily deal: The two most sensitive inputs will be your vacancy factor and your cost of capital. A deal could look good assuming 5% vacancy, but bad a 7 or 8% . A deal could look good at 7% interest rate with 25% down, but underperform at 7.5% and 30% down.
Red Flags: Multifamily is valued based on NOI divided by Cap Rate. Trouble is, NOI doesn't factor in capital expenditures. So keep an eye out for any major improvements needed in the first few years of your ownership (roofs, exteriors, HVAC, electrical rewiring, etc)
Things to know before starting: Make sure you buy at a basis in-line or below market comps (on a per unit or rent multiple basis). Sellers and brokers like to pitch value on income and cap rate to make the deal look good. We can fluff the numbers pretty easily. So just make sure you do a sanity check with comps so you know you're not overpaying based on unrealistic underwriting.
Quote from @Alecia Loveless:Thank you so much for the inputs. I will definitely look into Brandon's books. Is his calculator available for free or only for those who attended his training? For now I want to start small so looking for 4 units or less until I gain some experience.
@Rakesh Battula All that being said Biggerpockets has a great calculator for rentals that I always use which has never let me down.
Brandon Turner has a much more detailed calculator that he has created for his mastermind group The Better Life Tribe. Brandons two books on multi family investing are also must reads for any investor.
Other than reading lots of books and listening to podcasts I have had no formal training in dealing with analysis and am doing well just with the biggerpockets calculator.
However if I decide to undertake a large multi family I may consider finding a consultant to help me with the analysis and research. I’m currently doing deals between 6-10 doors.
Quote from @Tim Ryan:Do folks know of mentors / coaches with expertise around upstate NY? Thanks!
Hi Rakesh, if you are serious about learning multifamily and going all-in, then you should get trained. I did coaching at RE Mentor in Boston. David Lindahl's program will teach you everything you need to know and you will succeed if you take it seriously. You can start with reading his books (Multifamily Millions) and go to a local seminar when they are in town. But coaching will be the game changer for you.
Quote from @Rakesh Battula:
Quote from @Joseph Bui:Thank you for the inputs. Does good appreciation in the area offset little lower rents in your opinion? Or does it purely my choice of whether I want cash flow or equity build?
Hi Rakesh, I own 9 doors across a couple midwest markets. They are a mix of multi family and single family. They metrics I look at are rent to price ratio, history of appreciation and potential built in equity. Would be happy to connect and talk more about my investments.
Equity build is the key to wealth. However, it’s a gamble. For example, I’m based in the Seattle area and everyone believes Seattle will appreciate and has already appreciated very well in the last 5 years. While this is true, Seattle got beat out by many lower priced markets like Detroit and Memphis the last 5 years. My philosophy is get cash flow to maintain your investment and wait till the appreciation comes. We have no idea when that will be or which cities will appreciate the most. It could be 10 years from now in the city you choose. If your are cash flow positive, you can weather long term through emergencies and other problems that could arise while you wait.