How to Analyze a Multifamily Deal

Analyzing a multifamily deal requires systematic evaluation of income, expenses, and returns. Here's the framework professionals use.

Step 1: Gather Information

Before running numbers, collect:

Rent roll (current rents by unit)

Trailing 12 months (T12) income statement

Tax returns or Schedule E

Property tax bills

Insurance quotes

Utility bills (if owner-paid)

Recent capital expenditures

Step 2: Analyze Income

Current Rent Roll

List each unit's rent

Note any vacancies

Identify below-market units

Market Rent Analysis

Research comparable rents

Calculate upside if rents are raised

Consider lease expiration timing

Gross Potential Rent

Total if 100% occupied at market rent.

Vacancy & Credit Loss

Deduct 5-10% for realistic vacancy

Include expected non-payment

Effective Gross Income

Gross potential minus vacancy and other losses.

Step 3: Evaluate Expenses

Fixed Expenses

Property taxes (verify with assessor)

Insurance (get quotes)

HOA fees if applicable

Variable Expenses

Repairs & maintenance (budget 5-10% of rent)

Turnover costs

Management (8-10% if professional)

Utilities (if owner-paid)

Capital Expenditures

Reserve for roof, HVAC, etc.

Budget $250-500 per unit annually

Total Operating Expenses

Should be 40-50% of gross income for most properties.

Step 4: Calculate NOI

NOI = Effective Gross Income - Operating Expenses

This is your unleveraged return before debt service.

Step 5: Evaluate Returns

Cap Rate

Cap Rate = NOI / Purchase Price

Cash-on-Cash (with financing)

CoC = Annual Cash Flow / Total Cash Invested

DSCR

DSCR = NOI / Annual Debt Service

Lenders typically want 1.2-1.25 minimum.

Step 6: Stress Test

What if vacancy doubles?

What if rates increase 1%?

What if expenses rise 10%?

Run sensitivity analysis to see how robust the deal is.

Red Flags to Watch For

Seller won't provide T12 or tax returns

Rents significantly above market

Deferred maintenance visible

High tenant turnover

Unusual expense ratios

Quick Analysis Framework

For a quick initial screen:

Does it meet 1% rule? (Monthly rent ≥ 1% of price)

Is cap rate acceptable for the area?

Will it cash flow after debt service?

Is there value-add potential?

If it passes these, dig deeper.

Use our Multifamily Calculator to run a complete analysis in minutes.