How do you know if you should invest in a multifamily deal? How do you analyze a multifamily real estate deal? How do you calculate the numbers to figure out if it’s worth buying? We have definitely been there—the first time, the 20th time—it felt like juggling so many numbers and a lack of confidence in knowing what to do.
I don’t think I could ever forget that feeling. There’s just so much to consider: cap rate, cash flow, NOI… trying to calculate all of that can easily make you feel overwhelmed and anxious. That’s why we created this beginner series—video number four—on how to analyze a deal.
We’re Ali and Amanda with ProspHer Collective. If this is your first time joining us, please go back and start with video number one and explore other videos in your real estate journey. We’ve spent countless hours on different spreadsheets and software, trying to hand-run numbers—and, honestly, it was painful, and we often felt lost. But then we found an amazing tool, which we’re going to tell you more about.
Multifamily Real Estate Deal Analysis Spreadsheet
The one we use is Michael Blank’s spreadsheet. It does have a cost associated with it, but it’s well worth it. Michael also has tutorials that walk you through how to use it. So, let’s dig in and analyze a deal!
We’re going to do a 10-minute analysis, where the goal is to determine the maximum you’re willing to pay for the property. This way, you won’t spend hours analyzing a deal or get into due diligence without knowing if the purchase price is in your range. With the 10-minute analysis, you can also respond quickly to brokers, avoiding missed opportunities. If it takes you a whole day to underwrite, you might already lose the chance to get the property.
Step by Step to Analyzing a Multifamily Real Estate Deal
Here’s what you’ll need: the offering memorandum, and ideally, actual financials. But most of the time, you’ll only have the broker’s memorandum, so we’ll base our analysis on that today. You’ll want to watch the video to follow along. On the left side of my screen, I have the offering memorandum; on the right is Michael Blank’s deal analyzer.
Step 1: The first thing to look for in the memorandum is the purchase price. If it’s not listed, we’ll show you how to estimate it, or you can call the broker and ask, “What is this property expected to trade at?” Brokers often list properties without a specific price, even though they usually have a range in mind. So you can call and ask, or we’ll calculate it using the cap rate in a bit.
Step 2: In the spreadsheet, focus on adjusting the blue cells initially. Leave the black cells for more in-depth analysis. Start by entering the asking price—$4.5 million in this case—and the number of units, which is 54. The spreadsheet populates from there.
Step 3: Next, enter the gross potential rent, called “gross scheduled income” in the memorandum, which is $58,183. For vacancy, they project it at 7.5%, with a cost of $35,940. Enter that as a negative number. You’ll see the calculation shows 6.93%, even though they list 7.5%, so you might catch minor discrepancies as you go.
Now we have the gross potential income, and we’re just going to add an advertising expense as an example, which will populate down to the bottom.
Step 4: Skipping the debt information for now, we see the net operating income (NOI) projected at around $273,000. Our result is close enough for this analysis. They list the cap rate as 6.8%, so adjust the market cap rate accordingly. Interesting to note: in the executive summary, they mention a cap rate of 6.15%. Adjusting it to 6.15% shows a slightly lower price.
Step 5: In our analysis, we’ll adjust vacancy. Generally, you use the higher of the two values, but 10% is a good starting point. Here, vacancy is closer to 20%, so we’ll adjust accordingly.
Step 6: For expenses, start with 50% as a rule of thumb for a 30-plus door property. Adjust the expenses to $223,000, which is around 50%.
Step 7: Keeping the cap rate the same, you’ll see our fair market price changes to around $3.85 million based on these adjustments. At this point, you can call the broker and say, “With your vacancy and expense estimates, we’d value this at around $3.85 million. Is that within the seller’s range?” If they say yes, you can move on to a deeper analysis with detailed rent rolls and financials.
This quick analysis can guide your next steps. After running this 10-minute analysis with us, you can see it’s possible to do it yourself. We recommend practicing on two to three properties per week. Use sites like Crexi or LoopNet (we discuss these in our last video) to find listings with rent rolls and financials in the offering memorandums. With practice, you’ll get comfortable with the process.
We’ve also linked our Facebook group, where you’ll find Michael Blank’s spreadsheet to use for your own 10-minute analysis. Thanks for sticking with us for video four, and we’ll see you in video five, where we’ll discuss financing. See you there!
