How to Evaluate and Analyze a Multifamily Deal

Multifamily residences consistently top the list of the most popular property deals for commercial real estate investors. Yet no two multifamily deals are the same and can generate very different revenue amounts. In order to get the biggest return on a multifamily deal, investors must perform a thorough analysis and evaluation of the property at hand.

Defining Multifamily Properties

Multifamily properties come in all shapes and sizes. Converted single-family dwellings, duplexes, triplexes, owner-occupied apartment homes, large multifamily residential complexes, and more fall under the heading, and some attract more tenants and generate more revenue based on location, style, amenities, and other factors. Before purchasing a multifamily property, a careful analysis must be performed to determine its overall profitability.

Start with Basic Questions

Before you dive into the cost analysis or looking at the operating statement under a microscope, start with some basic questions. First and foremost should be to figure out why the current owner wants to sell a multifamily property. Multifamily properties can be very lucrative, and the reason for selling can be something as simple as the owner is getting too old to take care of the property, and wants to retire. On the other hand, there could be a less obvious reason, such as the property is going to be re-zoned in a few months, or there is something wrong with the HVAC or foundation that requires a lot of capital to fix.

The Operating Statement

In a lot of cases, multifamily properties come with at least two operating statements. Operating statements include expenses such as insurance, taxes, utilities, maintenance, marketing, management fees, and more. There are usually operating statements provided by either the owner or broker, as well as the “pro forma” statement, which shows the potential costs and revenue. While the latter is an estimate, the former may not be the most accurate, and iff the number seem off, they should be challenged.

Historical Operating Data

Asking for the year to date operating financials is standard, so don’t feel like you’re disrupting things or offending anyone when you request that information. Profit and loss statements, rent roll, ongoing repairs, and more will provide a much more accurate picture of how profitable a multifamily property is. Use this information to see how much revenue the property would generate at 100 percent occupancy, and how rent compared to similar properties in the neighborhood. Is there a positive cash flow? The expense sheets will give you an idea of how recently things like plumbing and electrical were repaired or upgraded, or if there are any major renovations that the current owners has been putting off.

By running a full analysis, you will get an idea of how much work you need to put into a multifamily property, and how long the rent will take to move those expenses into the black. The data will also allow you to bring up concerns to the seller or broker, and negotiate a better deal than the asking price. For multifamily property deals, simply getting an inspection may not be enough. By doing a deep dive into the numbers, you will be able to come out on top and get multifamily properties without breaking the bank.

At CounselPro Lending, we provide financing solutions for multifamily deals of all shapes and sizes. Contact our offices today to learn more.


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