How to calculate price for Multi Family property

[Sunny Kapila]

I am looking to get into buying a Multi Family property and have couple properties in the pipeline, need to know how exactly to calculate the price to make an offer, please advise!!

[Jared Carpenter]

@Sunny Kapila

Q: Nine times out of ten, what is the most important thing to an investor?

A: Cash flow

Q: How do you determine cash flow?

A: Income – Expenses = Cash Flow.

What numbers do we need to know?

1. Gross Income (monthly)- This is simply what amount of rent you expect to receive
2. Monthly Expenses
   1. Mortgage
   2. Taxes
   3. Insurance
   4. Property Management Fee: If you are not going to manage yourself
   5. Utilities
   6. Vacancy
   7. Repairs
   8. Contract services

3. Monthly Gross Income – Monthly Expenses = Net Income. If the number is positive, Congratulations, keep going. If the number is negative, turn back.

4. Calculate Returns - There are two important numbers that you will need to focus on.

A. Cap Rate: This simple number tells you if you are buying a good deal.

Net Annual Income / Purchase Price = Cap Rate

(Note about Cap Rate: This is simply giving you a percentage number. Simply put, the higher the percentage, the better a deal. You have to decide how low you will go.)

B. Cash-on-cash Return: This number is the how much you are receiving on your actual investment. If you purchased the property with cash, this return will be the same as Cap Rate.

Net Annual Income / Total Cash Investment = Cash-On-Cash Return