criteria for buying multi-family - Posted by Bob-Md

Posted by wpage on October 13, 2003 at 11:30:59:

Bob The first step to take in determining whether it is a good deal or not is to look at the gross revenue in relation to the asking price. Now this is not easy to do because every market is different. It boils down to how much you know of the area in which you will buy. You must do comparables of like property sold in the area. You must know how much rents are going for in the area. Are the rents on the subject property which you want to buy at the low end or the high end of the market. If they are at the low end of the market you may pay more now for the property but have the potential to increase rents which will make your deal better over time. If they are high then you better be in an appreciating market. How old is the building? Obviously you will pay more for newer construction than older. However, you will have less maintenance which will offset the cost of buying over time. Investors have many fancy ways of calculating whether it is a deal or not. A simple ball park method of knowing quickly is the gross rent factor. How many times the gross rent is the asking price? When I was buying in the 70’s and 80’s in my area I would never pay more than 5 to 5.5 x the gross income. Now, today, with the low interest rates I could probably pay 7 times the revenue and be okay. This is not a cut and dried theory, just a guide. Some areas you may have to pay higher.
Next, once you think it could be a deal you must question everything. Revenue is easy; look at the leases and look at the quality of the tenants. Expenses are more difficult and more important. Who pays for what? Who pays heating costs? Major expense. I try to stay away from heated buildings paid by the landlord. What are the taxes, insurance, and general maintenance costs? Do you have to have someone clean the hallways? This is a crummy job!! What major repairs are required? When was the roof done? Major expense! What type of electrical entrances do you have?
What condition is the brick or siding? etc etc. Ask questions!!
The last and most important is there any money left on your investment? Cashflow is KING$$
hth to start you thinking? By the way there is no better investment than RE but it is not a get rich quick scheme but a great retirement scheme. wpage

criteria for buying multi-family - Posted by Bob-Md

Posted by Bob-Md on October 13, 2003 at 07:48:10:

What are the buying criteria for buying a multifmaily house to be held as a rental…by multifamily I mean a 3 or 4 apts.


Re: criteria for buying multi-family - Posted by Sean

Posted by Sean on October 13, 2003 at 12:21:19:

Cashflow… pure and simple. If its a multi unit, its purpose for being held is cashflow. Good condition and seperate utilities.

Re: criteria for buying multi-family - Posted by wpage

Posted by wpage on October 13, 2003 at 09:31:40:

Bob The word “criteria” is a big word. What do you want to know? How do you determine if it is a good deal? What expenses do you calculate? How much cash do you need? How much financing can you get? What price should you pay in relation to revenue and expenses? etc. etc. Please elaborate. wpage

Re: criteria for buying multi-family - Posted by bob-Md

Posted by bob-Md on October 13, 2003 at 10:42:38:

What I was thinking of was primarily the due dilligence checklist eg. monthly rents, ROI, how to calculate expenses associated with a multi family propeerty, and yes, is it a good deal after checking all of what needs to be checked, etc.