How to Analyze a Multi-Family Deal with Expansion Upside

[Leo Di Croce]

The upside here is potential expaision. The site has preliminary approval to build 10 additional 2-bedroom units. Based on rough numbers, the ROI is very good — for the expansion.

Unfortunately the ROI is very low for the acquisition itself. Without expansion, the deal fails our analysis.

Our analysis consists of a spreadsheet that was developed for cash flowing properties. My wife and I don't consider ourselves the most sophisticated investors. We like property that is tenanted. Land development is not.

We're excited about this deal because of the mix. The existing tenants will cover the cost of acquisition. And the ROI — for the expansion — is very good.

But what if the expansion is delayed for whatever reason? What techniques are available to model the mix? Ultimately, we would like to calculate a fair target price — for the acquisition.

Thank you in advance for your insights, suggestions, and participation in this discussion.