Multi family Commercial Thumbrules/Guidelines

[Keegan Dsouza]

What are some thumb rules or guidelines while investing( For eg : $500,000 to $1,000,000) in commercial multi family apartment units ?

[Spencer Gray]

Here are just a few off the top of my head- these are "general rules" and don't always apply as there are always exceptions. These are for commercial multifamily in general. 

Expenses should be anywhere between 40-50% of the income from the property.

10% economic vacancy assumption.

Breakeven economic occupancy should be around 75%+-.

Look for at least a 200 bps spread between your interest rate and your cap rate. 

We target 8% cash on cash in y1 and target an average cash on cash over 10% over the life of the deal. 

We target 15% IRRs and want to see a 2X equity multiple over a 5 year hold. 

Average rent is less than 20% of household income within a 2 mile radius.  

Trending demographics (population growth, job growth, income growth, good supply and demand balance, etc)

$250-350/unit for insurance

If there is onsite staff estimate $900-$1200/unit.

Properties with 50+ units can start to afford onsite staff. Assume 1 onsite staff member for every 50 units. 

3-5% property management fee depending on the size of the deal.