Dont know how to analyze an apartment deal deal

Las Vegas · Member since 2019 · 42 posts · 12 votes

Right now i dont know, what i dont know... I'm looking to purchase a 50+ unit apartment deal.

I dont know how to read PL statement/ T12. I know what most of these terms mean as individuals, but when i look at it as a whole, I dont really know what i am looking at.

What should i do?

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Arlan Potter

Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes

Don't invest if you don't know what you are doing.

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Frank Bonzai
OP
Las Vegas · Member since 2019 · 42 posts · 12 votes
6y
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Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
Originally posted by @Frank Bonzai:
Right now i dont know, what i dont know... I'm looking to purchase a 50+ unit apartment deal.

I dont know how to read PL statement/ T12. I know what most of these terms mean as individuals, but when i look at it as a whole, I dont really know what i am looking at.

What should i do?

There's a lot of info out there on analyzing multifamily properties. It's income - expenses which leaves NOI to pay debt service. t12 is previous 12 months expenses laid out by the month so you can look at month to month comparisons and look for outliers or inconsistent items.

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Arlan Potter
Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes
6y
Don't invest if you don't know what you are doing.
2 Reply
Jerome Myers
Rental Property Investor · Greensboro, NC · Member since 2019 · 24 posts · 5 votes
6y
@Frank Bonzai work with a coach to help you overcome the 4 major challenges of getting into multifamily. Fortunately the banks will keep you from getting into a bad deal...
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
6y
@Frank Bonzai You might try to hook up with @Michael Ealy or @Joe Villeneuve and others, who could help you out.

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Rick MartinPro Member
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
6y
@Frank Bonzaistart the process of educating yourself. Learn how to analyze deals using a reputable spreadsheet. I hear good things about the free tools from ACRE. Sign up on CBRE and download some deals. Or, there is always LoopNet.
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Manny Cirino
Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
6y
Originally posted by @Frank Bonzai:
Right now i dont know, what i dont know... I'm looking to purchase a 50+ unit apartment deal.

I dont know how to read PL statement/ T12. I know what most of these terms mean as individuals, but when i look at it as a whole, I dont really know what i am looking at.

What should i do?

Go to loopnet look at several deals some will have a pro forma, t12, t6, property flyer, memorandum, etc all documents that break down the income and expense. Review them with a note pad next to you, and write down every term you see. Then study those terms to learn more. And within those terms, explinations and examples will appear even more terms you don't know and will also have to study. once you start to understand a little better look at the deals and try to underwrite them yourself practice, practice, practice.
Attend youtube & google university everyday. Listen to podcast everytime you drive and everytime you sit on the toilet. Waste a bunch of money on a bunch of books that only tell you an elementary level or information and theoretical concepts, but never anything practical. That should keep you busy learning for about the next 2 maybe 5 or even 10 years. See you then!
My point is one post is not going to give you all the magic answers there is a huge learning curve and you have to
A. Study your *** of learning like most people here did or
B. Pay for a mentor to cut that learning curve in half.
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Scott Morongell
Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
6y
@Frank Bonzai there is a lot of information out there in apartment books, podcasts, and even youtube to learn the basics of analyzing an apartment deal. As others have mentioned you could pay for a mentor or coach, however spending a lot of money for them to teach the basics may not be the best use of your money and time. Your other option is to find an operator and partner on a deal where you bring the capital and they will underwrite and operate it.
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Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
6y
Originally posted by @Bjorn Ahlblad:
@Frank Bonzai You might try to hook up with @Michael Ealy or @Joe Villeneuve and others, who could help you out.

Thanks for the mention Bjorn.
Frank, what I do is I first focus on one metric that "trumps" everything - i.e., it's my most important number. Once a deal "passes" my minimum threshold for that metric, I can look into the details of the P&L of the property.
For me, my focus is VALUE-ADD. I don't buy anything unless I know I can increase the value by addressing the property's deferred maintenance, or updating the apartments or solving the property's financial underperformance (or all of the above).
I created a tool that allows me to evaluate a deal in 5 minutes or less. It will even say "Yes" or "NO" to the question: Is this deal worth looking into? Here's the screenshot:
If it says "Yes" I look at the detailed T12 (trailing 12 months) and I look for those economic inefficiencies (like low rents, high repairs and maintenance, high vacancies, high capex, etc) that I can improve.
As others said, you need to read books/listen to podcasts/attend webinars and seminars to know apartment underwriting. Then you need to do a lot of practice underwriting until you get an "intuitive" feel for it.
I can give you the tool above if you want. Let me know.
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Randall Weatherall
Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
6y
Great advice and great tool from Michael! But, if you're new and not sure how to do MFU, then I might say a 50+unit is a little too much to bite off at first. It could pay off, but it will be an uphill battle. Luckily, if you're getting a loan, the lender is a great line of defense for a lot of people and the Agent you're working with should be able to give insight. If you're not working with one on your first deal of 50+ units, then that could be a problem right there.
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