How to analyze a multifamily deal FAST

Hey everyone. So today we are talking about how to underwriter analyze an apartment deal and do it fast so you can move on to the next deal if it's not a good deal or you can find out if it is a good deal and move into the letter of intent phase. So my name is Jonathan Cronin and together with my partner we run a mastermind that focuses on helping investors scale, scale through apartments. And the team represents about 30 million in assets under management. And one of the things we realize and we talk about a lot is the need to be able to process and analyze deals quickly and have a surface level analysis so you can move on. You need to analyze a lot of deals so, so you can get the one really good deal and the only way you're going to be able to do that is have processes to knock it out pretty quickly. Otherwise, underwriting and analyzing all these deals will take a lot of your time and it will be hard to find the really good deals in the rough. So let's go ahead and jump in. I'm going to share my screen and show you exactly the quick analysis spreadsheet or not spreadsheet, but just formula. Okay, so today I think we're going to walk you through how to do a deal. Actually we teach starting at deals, about 32 plus units. So this is going to be, this is a 12 unit apartment deal and it's a lot less, yeah, a lot less units than we normally focus on. And it's in a worse class than we normally focus on. This is like class C, C minus. We normally focus on B or C but in A, A or B area. And this is really a class C area, maybe even D. But for the sake of simplicity and helping you understand exactly how we do it, it's all the same. So what's needed to be able to do a quick analysis and that is your market. Rents. What could you get in rents if it was renovated fully? What's your max rents in that area? Unit mix. What, how many of each type of unit? Whether it's two, one, three bedroom, one bath, you know what, what is the unit mix expense ratio and your renovations needed? What's the renovations cost? So there's only four key metrics that you need in this deal to be able to understand what you can make, what offer you can make in the forefront. And I say once you get this, mao, maximum allowable offer. Once you get this, I normally don't take it as like, you know, if their price isn't that, then you know, we have to move on, I'm normally given, you know, depending on the size of the deal, you know, if it's within, you know, 80% of the asking price, then I'll move into the next phase, which is a deeper assessment of the property, even taking into account debt, taking into account the exact expenses, if you haven't already pulled those, doing a little bit deeper market analysis. But first you take your market rent. So for this case, it's $450 to $600 depending on the unit. And so what you do is you just simply find your unit mix. So down here in the quick calculation, we're on number one, you take your unit mix times your market rent rates and times 12, and that is your gross potential rents. So your unit mix for this situation is a seven unit, that's two bedroom, one bath and a five unit, that's three bedroom, one bath. So seven times 450 and five times 600, that and then let's see, I'll just go ahead and walk you through. Do it with you. So if you want to bring out your calculator, check this out. Seven times 450, that's 3150. And five times 600 is 3000. So plus 3150, that's $6150 per month in your market rents. Okay? And then times 12, that's $73,800. Okay, so now if you say, well, how do I find the market rents? You know, the unit mix you got to find from the seller, you got to find from property records somewhere. But how do you find the market rents? Well, if you don't live in the area or if you don't know that area, you can go to several different websites or check it out on Google Maps or you know, you can just call somebody in the area. There's so many ways to figure it out. Again, you don't want to spend too much time on this. You can Simply go to rentometer.com now that isn't always the most accurate, especially when you get into lower class kind of stuff. But that's one way of trying to figure out what is the, the typical rent in the area. So rent o meter.com will help you in that area. It'll tell you what, what your rent should be. Again, you, you can call other apartment area apartment complexes in the area, you can call other, other landlords or whatever in the area and try to figure out what things are renting for. You can go to Zillow or any of these other things and see if you can find out, do some, do a little research. But once you have that, you can plug in that and you got the first bullet point down. You got the first step down. You've got your gross potential rents. So that's your annualized gross rent. Now move on to step two. Your gross potential rents times your expense ratio equals your noi. So if you do not have your, if you do not have an exact breakdown, which you probably won't unless it's on market. Again, we're talking about deals that are off market. In our mastermind, we teach how to run through off market apartment deals, how to find them, how to, and lock them in. And I believe that's where you're going to find your best deals at, especially stuff that's going to follow this formula in this calculation. Okay, so but if it's on market, you probably have more access to expenses, you know, in this forefront. But again I would probably assume between 45 and 50% expense ratios and see if you can make it work with that. If you can, then you know, this is, you're guaranteed to not waste your time as much. So I assume 50%. So if it's 50%, you know, then you take your gross potential rents times 50% expenses and that's your net operating income. So that's like your profit, like what you're making the end of the day, no I is $36,900. So then step three, you're taking your NOI divided by your cap rate. And, and, and your cap rate is going to be in this scenario. It's going to be what it would be at what you're, what you could sell it at at the stabilized value, which is it's all fixed up, it's occupied fully or it's at least above 90% occupancy. It's, it's at market rates, you know, and, and for a class D area, you know, it's probably going to be, you know, depending on your area, you can get a for sure what is your cap rate in your area? By calling mortgage brokers. So you can just look up mortgage brokers or you know, you can sometimes talk to agents or whatever, but they can be biased on one side or the other. But either way, 8% cap rate is what I put this at. And so your NOI divided by that would be your stabilized value. So the $36,900 divided by 8% cap rate is your stabilized value. Okay, now we need to talk about where do we come at? Where's the deal at all. Your stabilized value in step four, you take that and you times it by 70% and that's your total cost basis. So that's going to be the, the amount that you want to be all in at. And then you've got to minus your reno cost. So you take your, your cost basis minus your rental cost and you get your maximum allowable offer. So for 322,875 being the total cost basis, you minus your rental cost and your rental cost is again, this is speculative. I, before putting a letter of intent, especially if it's a big deal, not necessarily these deals, I don't need to go see the property necessarily to put a letter of intent out because again, your letter loi or your letter of intent is not necessarily a contract. It's, it's not legally binding. You can say depending on the property being in this condition that you know, we do this due diligence period. You know, this is what I think I could pay. But your maximum allowable offer is what you're going to submit as an LOI. And if, if they're asking within 70, maybe 80% of that 272, I would move on to the next phase. And, and we actually have a whole spreadsheet I can share with you if, if you want access to that spreadsheet, just let us know or reach out to us comment, say I'd like that and I'll shoot it to you for free, totally free. But it goes into detail. It talks about, you know, your all in cap rate. It goes into, you know, every possible thing that it includes debt, everything that is needed to make a more accurate, more confident assessment of what you should be able to pay. And then you can tweak the numbers a little bit. Tweak the, you know, I'd want to be all in at 10 to 12% of that cap rate. So then I can sell it for 8% and still make good money on it. So I hope this helps. I just wanted to simply share the quick analysis. All you need is market rents, unit mix, expense ratio and renovations that are going to be needed. And, and you can figure out what your maximum allowable offer is. If it's within 80% of that number, move on, start doing it. But if it's not, move on to the next deal. Go find more deals and, and start and, and clear your desk. The faster you can analyze, the faster you're going to be able to find the right deal instead of just trying to make any deal work. Okay. Yeah. If you, if you want to know how to find off market deals, I just made a video about that. You can check out our channel and, and see if, see how to get started in the off market apartment game. Otherwise, I hope that helps. Hope that adds a lot of value. Have, have a wonderful day.