is a Net income multiplier of 15 considered a good deal?

[Mazen Al Ashkar]

Hi,

I'm about to place an offer on a 4plex in Longueuil (off the island of Montreal). Being my first plex, is a NIM of 15 considered a good deal in your opinion? 

Appreciate your help on this. I only invest in Mortgage notes but i'm starting to diversify my strategy more. 

Thanks

Mazin

[Roy N.]

@Mazen Al Ashkar

NIM is the reciprocal of the CAP rate, so a NIM of 15 would correspond to a CAP rate of 6.67. Of course CAP is the ratio of NOI / Market Price.

As a metric, it's marginally informative - and only as valid as the methodology used to arrive at the NOI - and of even less merit when evaluating residential real estate.

You would not base a purchase decision on NIM or CAP - I would look carefully at the free cash flow and return of the business, along with it's potential for growth (and the cost of realizing that growth). If you want a metric, gather 2-4 years of financial data for the business and calculate the {M}IRR (projecting into the future with conservative assumptions).