How to Analyze a Multi Family Real Estate Deal in 4 Steps

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how to analyze a multifamily deal

Investing in a multifamily real estate deal should never be a result of snap decision-making. Those starting on the path of an investor have all the more reason to carefully consider some fine points before committing to a multifamily real estate deal. But, how to analyze a multi family real estate deal for its real worth? Is it brilliant enough to qualify for your investment? What should be an ideal offer?

Every listing that falls within the bracket of a multifamily asset must be subject to scrutiny and analysis. Only with a keen eye for those details in every deal come across, can you come across that perfect multifamily deal that is worth your investment. Routine multifamily real estate investment analysis is critical for developing your baseline for submarket analysis. It also inculcates habits such as organized spreadsheets to conduct a thorough analysis, understanding the market, or potential tenants on your radar, and eventually getting better at pro forma assumptions too.

Plus, the most analytical multifamily investors always follow the steps below.

4 Quick Steps on How to Analyze a Multi Family Real Estate Deal


1. Become inquisitive

Start by becoming more inquisitive about the multifamily real estate assets you come across. Note down any questions or comments you may have about the property once you have gone through the Offering Memorandum. Find out why the property may have a high vacancy rate; ask for the owner’s reason for sale; if there are any indicators for a hike in the rent.

It is good for investors to formulate cogent questions about the property; it even helps to jot them down next to each entry in your spreadsheet.

2. Use numbers for your analysis

The next step in your analysis should be to run the numbers you assign to each Offering Memorandum. This helps your multifamily real estate investment analysis by offering some insight into how the broker or the seller arrived at their asking price. For the most part, investors usually have access to two sets of numbers- the current property income+expense; the pro forma property income+expenses.

However, it is crucial to bear in mind that any number you see in the Offering Memorandums has been exaggerated. Also, it is important to arrive at the pro forma numbers through calculations, since they are largely based on assumptions.

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3. Build analysis using historical operating data

Next, analyze the financials for the assets that are in contention for your investment. Analyze the Annual Property Operating Data for financial data such as the Property Rent Roll, Annual YTD Profit & Loss statement, etc. Analyzing these details can offer insight into whether the asking price is realistic, how motivated the owner is to sell, etc.

Brokers and sellers will seldom offer these numbers upfront, so, all investors must be diligent enough to at least ask for the same voluntarily. An asset’s Annual Property Operating Data is calculated on a Year-to-Date basis. Investors may conduct a comparison of the current and operating financials for their analysis as it allows them to see how well the property fares at present. This data is more accurate than any assumption or exaggerated pro forma numbers.

4. Analyze from a pro forma perspective

The last step in the multifamily real estate investment analysis is to analyze it from a pro forma perspective where you already enjoy ownership over the asset. It helps infer how well the asset shall perform under your ownership. Arriving at such an inference requires investors to create a spreadsheet where they can analyze how a given asset may perform over a 12-month course for projected incomes, expenses, capital expenditure, debt, etc.

Investors must maintain a realistic frame of mind while conducting a multifamily asset investment analysis. It can be a good practice to find an experienced investor who can mentor you on making pro forma assumptions. The pro forma values are accurate as long as investors put in their homework. That homework includes inquiring local vendors such as the garbage pickup company about their service charges.

Traversing these four steps allows even the most rookie investors to arrive at accurate offer prices through thorough analysis. It also helps eliminate any guesswork so investors can arrive at an offer price that renders the multifamily asset deal profitable for them.

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Fair Winds Capital Investments is a veteran owned and operated firm dedicated to providing safe and exceptional quality housing to our tenants. We aim to provide our partners with a shared ownership platform of low-medium risk alternative investments throughout the Southeast, with a partnership preference given to our fellow Servicemen seeking to add a diverse and bolstered income stream.

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