Quote from @Alex Deters:
So I've been looking on Crexi at Multifamily buildings and most have a 4%, 5%, 6% cap rate on average. Isn't that low? How does one justify putting 300k down to only make 2k-4k a month? Is that a normal return?
Hi Alex
You are not alone. When we first started looking at Multifamily, we had the same question that you do. If that had been the case, we would have stayed with other types of real estate. Fortunately, the cap rate is good for figuring Out the offer price and ultimately your selling price projections. Other than that, it’s not used for much else. If you’re looking at a class C or a class B apartment that have value to be added to them, your return can be much greater than the way you are calculating it now.
A good way to see this would be to join a call for a presentation from a syndication that is going over their latest apartment investment. You quickly see what type of loan they are taking, which is usually interest only, how they plan to refinance in three years, their improvement plans to the property to increase income and to lower expenses, their cash flow projections, and ultimately the year in which they predict to sell and for how much.
The first time you listen to one it really explains a ton and fills in a lot of holes. That starts your foundation and you just build on that.
Brandon Turner has a book that you can find on here that focuses on multi family investing. It comes in two volumes. The first volume is people investing in smaller multi family, think of duplex and triplexes or a 10 unit apartment. The second volume is for much larger apartment complexes, think of 100+ units.
Next would be to brush off your Excel skills, get ahold of someone’s analyzer for deals, and start to unlock your own opportunities.
Happy Learning.
Mike
