Cash flow on Multi-family

[Account Closed]

Salutations BP community, I hope you're having a sublime day on this day, a day with wondrous, illusory dreams. Alright, I'll stop. Onto a more serious note, imbued with gravitas, I am looking to use my home equity to invest on a multi-family. So I need to know what's the typical cash flow that an investor gets when buying a multi-family real estate? I have used the 50% rule and the BP calculator to analyze various properties and the cash flow is marginal. Also, what sort of set of personal indicators you use to tell if the multi-family property is a good investment? I live near Boston and would be interested in hearing some provincial local advice. But everyone's opinion is appreciated too. Thanks!

[Todd Dexheimer]

When buying Multi-family, most people aren't using the 1% rule. I would say most analyse with Cap rate, Cash on Cash, Internal Rate of Return (IRR). Personally I buy value add properties where I can be all in (purchase + reno) at 1.5-2% above the market Cap rate and also achieve an IRR of over 20% (assuming a sale in 5 years). I also look for properties that I can achieve better than 1.5 Debt service Coverage ratio.

Just remember, the rules are not rules, but guidelines. In some areas and with some class of properties your expenses will be 70% of the income, but in other areas and other classes your expense ratio may be 40% or less. Figure out what the property actually operates at, what the market rents are and what the market cap rates are.