How to analyze a multifamily deal?

[Arturo Borges]

Hey,

What are the top factors to consider when analyzing a multifamily deal? How to project cash flow, how to determine if it's profitable and will yield the expected returns to your investors and yourself?

Thanks!

[Will G.]

Quick and dirty... take gross rents per month, multiply times 12 months of a year, to get yearly gross income.

Then subtract 50% for expenses, or if you want to work and manage the property yourself, including light maintainance(for free), subtract 40%. Take your net income and divide by your cap rate. I can only guess what your cap rate will be but in hollywood, maybe 6 to 7 on a "c" class property.

So for instance $100k gross yearly income, minus 50% = $50k, divided by .06= $833k as a purchase price.

Now call the realtor and tell them they are nuts for listing the property at $1.1 m and you will offer $833k.

Sit back and watch someone pay wayyyy to much for it and be ready when it goes distress sale!

But seriously, if a prospect does not meet the above metric, make offer or move on. If it does, put under contract and refine numbers in due diligence