Rule Of Thumb?
does anyone have a quick rule of thumb that they use to evaluate a multi-unit? i'm looking at some 7 - 10 unit properties tomorrow and am trying to figure out some metrics so i can compare apples to apples...
thanks for any advice you can offer!
It's all about the cash flow. I usually figure in 30% for expenses, but that is usually high. I also figure in 5-10% vacancy rate depending on the area. If you could be more specific I may be able to help you further.
Good Luck,
Kyle
You should take the time to do a proper analysis of any property you entertain purchasing. It's good practice and fundamental for income producing properties.
You will not find a valid "rule of thumb" for a 7-10 unit property. That's an odd ball project. You could use a rule of thumb for smaller projects or larger project- but 7-10 units-no. Lastly, guess where most "rule of thumbs" end up??
thanks, kyle - i appreciate the input!
once i take a look at the properties, i may take you up on your offer of more help! i've been doing fix & flips, so this is my first foray into multis and i'll take all the help i can get ;-}
I disagree with sammyvegas. If you never go past your "rule of thumb" analysis, you're a fool. But you need something to sort through the numbers.
as for KyleGatton's response. I think he and I agree, but let me add a thought by posing this question. Is $1000 per month a good cash flow??? If it's a $100K SFR that you bought for no money down, it's incredible. If it's a $10M office building that you put $2M down on then you failed miserably. Cash flow is relative to price, down, and efforts. You need to go further than that.
Look at properties considering:
Price per unit (for similar units, areas, and conditions)
Cap rate
Gross Rents Multiplier
--Some people do a variation of this equasion by saying the price should be 7X's the gross yearly rent or less.
--The "1% rule" is another variation. You may make yours 1.5% or .75%. Adjust it for your market.
This may help point you in the right direction.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=467
The best thing you can do is figure out how to run these numbers in a couple of different ways (Excel will be your best friend) and then start crunching numbers for propertys that are listed and sold in a certain area. Pretty soon you'll get a good feel for what the price should be before you even see the asking price. That's when you're ready to move on a good deal when it comes along.[ Edited by hibby76 on Date 04/07/2004 ]
Definitely read the article Hibby had posted. It's a great primer to get you started into multi's. Since you have been in the business, you shouldnt have any problems going to the next level.
Kyle
thanks hibby - great article, exactly what i was looking for!
between you and kyle, i now have the info i need, i've set up the spreadsheet, and i can do the first pass analysis in a few minutes - bless you both!!
karen
Kyle's a good guy. I'm glad that we could both help you out.