How to underwrite apartments

Hey, what's up, guys? So today I want to talk to you about the four keys. You need to remember when valuing an apartment complex and analyzing if it's a good deal for you or not. Okay. Recently we talked about how to assess an apartment complex really quickly. Kind of do that first filter called what we call the napkin analysis. Okay. And basically all that. The point of that is to get the bad deals, the time wasters, off your desk to be able to know if it's worth your time to investigate further. Because the last thing we want to do is waste our time on bad deals. Right. We need to focus on what are the ones that can give investors 8 to 10% preferred returns plus, you know, a good amount on the, you know, annualized side in a couple years, once you refinance or once you sell, we want to be above 20%. Either way. This video, I really want to talk about what to do next. Okay. After the Navy analysis, after you've made that initial assessment, if you feel like you can offer just, say, within 25 to 30% of what the seller wants for the deal, depending on the size, then we need to proceed and we need to take into account a few factors. Okay. And just to give you context, we have a mastermind member right now that is actually closing on his first apartment complex, actually I believe in just a couple minutes on 51 units. Okay. And he's never done a large apartment complex before. It's super exciting. But he, when he initially locked that deal in, he offered the seller a million less than what seller wanted. I think the seller countered with like 500k last, and then they count them down a little bit lower, but it shows you the power of. Of really doing the numbers and just making offers, getting out there. But four keys you need to focus on. All right, So I would write this down. This is going to be really big. Number one, you need to find out what your market cap rate is. You know, capitalization rate. We've done videos on these before. You have to go back and check out where we talk about what that looks like. But a capitalization rate, you know, is basically, if you bought the property for cash, how much could you see in returns? Well, when you go to sell it, you know, it's your NOI divided by the cap rate equals your value. So we're also factoring in the market cap rate, which. Which takes into consideration comps in the area, other properties and what they sold for based on their noi. Because a property in a C class area is not going to be the same cap rate as a class area. Right. And it's going to vary city by city, market by market. Right. So you just need to find this out. And one and a couple ways you can find this out is a commercial mortgage broker is going to be able to give you the most accurate number, but you can also just kind of ask around, look on Google, kind of see what the cap rates in that area are for multifamily, not just for retail, not for. It's all different depending on the class and the type of asset. Okay, so that's number one, find out your market cap rate. Because we're not buying it for the current cap rate or we are, but we're buying it for the future. And then we're buying it at a discount of what it could be based on what it could be. Right. So what the future looks like, we're not, I mean, and talking about forced appreciation, we're not talking about natural appreciation. So when I say the future, we're talking about comps in the area that verify we can get the property up to this level, to a certain level. And the income can be raised. Right, the market rents can be raised. Okay. So number two, what you need to really look for is you need to verify and analyze the noi, the net operating income, which is basically your profit before debt, before capex, you know, your improvement cost and the ways you verify that. You need a rent roll, you need a T12 income and expense trailing 12 months income and expenses. Okay, Those are the things you need. You need to verify those things and what you can do. We use what we call a deal analyzer for our students and our members, but it's where you plug in the expenses. Right? So you would take that T12 and look at the expenses and you kind of have a guess at what the future expenses could be. Of course, considering the value is going to go up, right? So you need to think taxes are going to go up based on the value of the property. You know, you need to factor those key things in. But you'll have a pretty good idea of what expenses could look like with that T12. Third thing you need to be focused on is the market rents. What could are the rents just like that cap rate, what are the rents? How do you find these? You need to, you need to go out search in that area like you would if you were going to rent an apartment, if you were going to rent an apartment in whatever area you're looking at to buy the deal. If you were going to go Rent an apartment. What would you do? Go to apartments.com. you go to, you know, just different sites to see, you know, whether it's realtor.com, whatever it is to rent an apartment. Okay. You can call the apartments, you can look at pictures and see how it compares to your property. You know, you can do all this kind of stuff. Okay. There's also things, tools like rent o meter and stuff like that. But verify, verify, verify. The closer you get to locking the deal in under contract, you need to get really clear at what the deal can do. Okay. Or what the market rents are. Last thing you need to know, okay. Is verify the renovations needed. Okay. How do you verify renovations? Well, if you're in the area, you can go by and just take a look. Right. If you're not in the area, if it's remote, which is totally fine, you may want to network with groups like masterminds and things like that to find people who are boots on the ground. Right. To find someone. And you generally may need to give a little bit of equity, but it's totally worth it if you can find somebody to have eyes on the property, go visit the property and be there, especially during the contract phase, the due diligence, the value add phase, even. So get boots on the ground, get people who know the area and go look at the property, see what they think. Or you could look at Google Photos. You know, that's not going to be sufficient for the whole process. You need to know. You're also asking the seller. You're also, I mean, they're not going to, you know, under project or no, they're not going to over project what you need in renovations more than likely. So you can at least take what they say and then build upon that if needed. But you can also call a handyman, say, hey, would you. I pay you a little bit to go and just kind of walk the property, look around, snoop around. Okay. So there's many ways you can do that. I hope this helps. But those four things you need to verify before moving on to making the offer. You just need to make sure you do that at the end of the day. We need to pump out several. Lois. We need to pump out several offers, but. But you also need to be careful and make sure that you're looking at those four key areas. So if you'd like to get our deal analyzer tool, just let us know. Reach out to us or schedule a call. What we'll do is we'll link a free training in the description and you could check that out, Let us know what you think. But. All right. God bless.