3-year rule — anyone ?

[David Smith]

Purchase price + rehab price = 3 years of NOI

In many places, it won’t happen.   But , doable in some places.  Working for you ? 

[Danny Randazzo]

@David Smith I'm not familiar with this rule of thumb as it does not apply to large multifamily properties. What property types are you focused on? What is the price point to?

[Jared McCullough]

Originally posted by @David Smith:

Purchase price + rehab price = 3 years of NOI

In many places, it won’t happen.   But , doable in some places.  Working for you ? 

I am usually aiming for more like 4 to 5. That is a really tough metric to hit especially using NOI as I could see Gross Income being more realistic.

That would mean you would have to be getting a $30k property all in that rents for $1k a month and has less than $200/month OpEx. That is a very narrow market I have to feel like. 

This being said I calculated and my last deal is right around that but it was not what I am expecting to be my norm and I am just hoping I can keep the rent where it is at.

All in Purchase: $24,000

Rent: $875

OpEx: $200 (Taxes: $700/yr Insurance: $300/yr)

NOI: $675

3 Year Rule: ($675*12)*3 = $24300

[David Smith]

Say $30k acquisition cost with $15k noi per year. 

2-unit light rehab.  $700 per unit rent. 

2-3 years is the goal. 

Possibly refinancing after 1 year. 

[Bruce Petersen]

Your question was posted in the multifamily and apartment board, MF is 5 units and above.  

This is not even close to accurate for anything I have ever bought.

The property I closed on Monday was 200 units for ~19mm with annual NOI for years 1-3 of nearly 1.3mm; 3x NOI = 3.9mm on a 19mm purchase.