GRM for multi-unit

[Paul Cijunelis]

I know the 2% rule slides depending on the cost of the building...I'm looking at a 4 unit bldg now and trying to figure out a good way to evaluate these properties never having done a multi unit.

the GRM is an 8 and the 2% rule is at 1.01%. ROI I get for 100% down is 7.5%. If I finance, that goes higher obviously but I like to see what it would be as a cash deal minimum (baseline value). 30% is 10.5% return (this is chicago keep that in mind...).

Are these decent numbers for a 4 unit? How do you guys eval multi units?

[Joel Owens]

Paul most investors do not use GRM as it is too vague.

2% rule is typically for small houses in a lower price range.

2-4 units and 5 units or more is usually evaluated this way.

Take gross expected rents: Say 4 units at market rate 800 rent is 3,200 a month. 3,200 gross by 12 = 38,400 annually

If the landlord pays no utilities divide expected gross income by half to come up with 19,200 NOI before debt service. So at 192,000 sales price you would have a 10 cap.

If the landlord pays water and sewer and trash etc. then bump costs to 60 to 65% to get NOI. Now you will find many inexperienced buyers talk themselves into buying something that doesn't meet this criteria and they regret it later on.

There are areas that are cash flow only, cash and appreciation, and just appreciation. You have to decide if you want more yield and hands on or a nicer area with less cash flow but more appreciation.