Underwriting 4-Plex like Commercial Multifamily

[Snehann Kapnadak]

Hi All,

Is it realistic to underwrite a 4-plex the same way as you'd underwrite a small commercial multifamily property (more than 4 units)? I've been using Michael Blank's Syndicated Deal Analyzer and was wondering if I could use it for 4 plexes as well, since I'm trying to syndicate a 4plex from family and friends (I don't have that much capital and can't provide sweat equity to partner with someone). For example, for commercial MFH I typically implement the following from his analyzer:

• Conservatively estimate expenses as 50%
• 2% annual rent growth (again, being conservative)--I know this depends on the market
• Vacancy % = 1/[number of units in property]--ex. 1/6 unit, 1/8unit, etc.
• Ernest Money Deposit = ~1% of Purchase Price
• Charge an acquisition fee since I'm procuring the deal = ~1%
• Charge capital transaction fee = ~1%
• Charge Asset Management fee = 1%
• Refinance after X years and sell after Y years
• Gauge whether a deal is "good" if: Average Annual Return = 15%, IRR = 15%, Average CoC Return = 9%

Can these measures be taken for 4plexes as well? If not, what are the criterion I can remove? Should I perhaps estimate expenses at 40%? Not charge an acquisition fee? Lower my "good deal" thresholds? What I'm finding is that my offers are too low for sellers to accept, but they meet these criterion, so I'm wondering if I'm being too strict in my underwriting.

Is there an Excel model specific for 4-plexes? I couldn't find it in the FilePlace.

Hope this makes sense. Thanks in advance!

[Brandon Sturgill]

So harsh @Ben Leybovich ;) 

I remember being a fledgling investor...those days were so good...naivete in abundance. @Snehann Kapnadak 1-4 unit properties are valued on the comparable sales method. Period...however, in a tight situation and appraiser will look to the income method for support...mainly GRM...which is ironic, but whatever. Irrespective, the income every property produces will be considered by any lender if you are using a loan...so, it is important to know what your units are renting for and what your expenses are.

There is a benefit to super-analyzing small MF properties like this...you get practice for your future analysis of hundreds of properties and a successful career in the industry as you scale. As is, this analysis is merely for your own edification...we feel good as investors when we can know all the numbers associated with everything....but for this asset class it really doesn't matter. 

I've seen dozens and dozens of investors over-analyze themselves out of so many small MF deals I can't count any longer...

If you must analyze residential property, cash-on-cash is the only real measure...but it's limited...it simply lets us compare apples to apples so we can determine the best use of our limited capital. 

Keep analyzing your deals...but at the same time, if you are involved in this asset class, link up with a good agent that can produce reliable comparable market analysis reports.