Multifamilies 101 - Where To Begin?
In our 5th Real Estate Meetup in July, we covered the basics of multifamily investing as well as the markets that meet our key considerations today. Here's a high-level recap.
What is Cap Rate?
Rate of return based on expected income (Net Operating Income / Current Market Value)
What is a good CAP Rate?
When the property rate is GREATER than the market rate, especially the submarket (i.e. suburb, zip code or neighborhood)
NOTE: Vacancy rate is very important to know for submarket and property.
Which is better?
A. Apartment complex of six units with $12K/ month NOI and selling for $2M (7.2% CAP).
B. Apartment complex of 100 units with $60K/ month NOI and selling for $14M (5.1% CAP).
Answer: it depends.
What class of multi-family to get into?
Class A - Typically institutional money (i.e. pension funds, insurance, banks). Great neighborhoods, best schools, highest-cost real estate. Low cash flow and typically high appreciation.
Class B - Decent neighborhoods and schools. Property is typically built within last 20 years. Exterior and interior amenity package is dated and less than Class A but good quality construction. Cash flow and appreciation are decent. Average national CAP 5.5-7.5%.
Class C - Attracts people who are either on government subsidies or working low-wage jobs. Property is typically built within last 30 years. Limited, dated exterior and interior amenity package. Majority of appliances are "original" and many signs of age and deferred maintenance. Average national CAP greater than 7.5%
Class D - War zones. AVOID.
Additional topics covered:
- Debated what size of property to get into and why
- Local and National markets that fit our entrance criteria
- How to find the right city for multi-families using FREE websites
- How to find the best property managers
- How to manage property managers
- How to find sales and rental comps
In our handouts, we covered the following to evaluate a market and how to determine key metrics.
- Population Growth
- Median Household Income
- Median Household Value
- Crime statistics
- Landlord friendly states
- Price to Rent ratio
- Predicted home increases
- Job growth by %
Note: FREE websites and how to use were provided to attendees.
This was a hot topic and we'll be covering this in more details at future meetups. Look forward to seeing you there.
Kevin + Kiri