How to Loose Money on Multifamily!

[Ben Leybovich]

One of my partners called me yesterday.  He said he had a lead from a wholesaler on an 126-unit in good part of the country that we should take a look at...

The marketplace really is quality - a stone's throw away from a major city.  Highly motivated seller with a story that made all kinds of sense - my partner spoke directly top the seller.

I come into the picture today.  My job is to underwrite the deal.  I spent 5 hours in which I researched the market, the little bit if info that I had (this is a very distressed situation), called my management contacts with boots on the ground in the geographical vicinity, and finally built a pro-forma based on available information.

According to my underwriting, the stabilized operation of this particular asset would result in negative gearing NOI to the tune of $120,000/year...

Let me say that again:

Even after everything is functioning as it should, this asset would still be loosing $120,000 of NOI! We are not even talking about Cash Flow here - NOI! No **** they are motivated...lol

Even if I were $100/month/door off on the rents, the NOI would still be negative $20,000.

Guys - I could not imagine that this would be the result of my underwriting.  I can look at a 4-plex and tell you if it works in 3 seconds.  The big stuff has so many moving parts, and so many line items you've never heard of that I literally had to go through the entire process to arrive at the results.  

It's really hard to underwrite mutli-unit.  And most people, whether they know it or not, loose money in this space...

Be safe and be wise!