17 Jul Multifamily Evaluation – Learn How To Effectively Evaluate Your Multifamily Property
Are you searching for more information on how to evaluate multifamily properties? If so, you’ve come to the right place.
In this article, we will offer you tips that you can use to effectively evaluate a multifamily property that you may be thinking about investing in.
How To Evaluate Multifamily Properties
Step 1 – Review the net operating income – To determine this, you will subtract the property’s expenses from the total revenue that the investment property generates each year.
Step 2 – Review the cap rate – One simple way to determine the cap rate for a property is to divide the property’s net operating income by its current market value.
Step 3 – Due Diligence – The hallmark of multifamily investment is due diligence because, this form of research is what’s going to show you what the property is worth.
Step 4 – Gross Rent Multiplier – Using a property’s gross rent multiplier is one of the most accurate ways to calculate a property’s profitability.
The best way to utilize the gross rent multiplier approach is to divide the total value of the property by the annual income that the property produces and that answer is going to be your gross rent multiplier.
Example: If you’re buying a property for $2 million, and it generates an annual income of $320,000, your gross rent multiplier for the property will be 6.25.
How do you put the gross rent multiplier into practice? Good question. If you use the same model with other multifamily properties in the area, and they have a gross rent multiplier of 11x gross, that’s a good deal, the average will be closer to 14 for 5+ units or 16 – 18 for 2 to 4 units.
Contact MW Real Estate Group
At MW Real Estate Group, we specialize in helping investors with sourcing, acquiring, and managing investment properties in the Los Angeles area.
To learn more about the services that we can offer you, contact us today by calling (213) 927-2117 or click here.