Posted by Chris(Indiana) on February 16, 2003 at 08:47:23:

This is a very interesting discussion in that I am not sure of all of these numbers and calculations but I would like to start buying multi-unit buildings in the near future. I am starting out rehabbing to build some cash flow, experience, and to have the necessary reserves when I buy. So while I am not looking to buy right now I would like to know these formulas so that when I am ready I can identify a good deal. Where can I find the formulas what they mean and how to use them? Thanks alot.

Go Boilermakers!!


Posted by FRANKLIN on February 15, 2003 at 20:19:25:

I call an ad owner motivated, willing to hold partial finance, 8 units, 60k gross- 41k net…Asking 650k. what i was told… question how would you stucture the deal so that it make sense to you, broker said to submit any offer…

Great Success… Franklin

Re: 8 UNIT BUILDING - Posted by Al - So Cal

Posted by Al - So Cal on February 16, 2003 at 15:25:42:

Heres my formula in a sense. Know rents better than anybody. Thats where the value
and profit lay.
My last apt deal - 9 unit bldg. Bought and sold in
7 months generating $215,000 profit.
The reason? Because I knew what I could do with rents
and the owner didnt. Your deal is 10.86 GM. If thats the market and you can
take rents up $100 a month on each unit and sell at
10.86 you just made $104,000.
Good luck.

Re: 8 UNIT BUILDING - Posted by GL - ON

Posted by GL - ON on February 16, 2003 at 09:08:31:

The price is way out of line to start with. I recommend you only buy apartments with positive cash flow. That means a price of under $400,000 for that place.

If you do an archive search for “GRM” and “Cap rate” or capitalisation rate you will find out some illuminating things. Also this type of deal is usually discussed on the commercial board of this site.

Re: 8 UNIT BUILDING - Posted by Zack W [PA]

Posted by Zack W [PA] on February 15, 2003 at 22:24:00:


Not to be rude [please dont get mad], if you dont know how to run the numbers on this deal [8 units] then you should not be making a offer any time soon.

Now to your question.

Take your gross annual income, minus ALL REAL LIFE expenses [utilities, lawn care, snow removal taxes, insurance, maitenance, managament, supplies, repairs, vacancy, advertising], the number left is what we call your NET OPERATING INCOME. Subtract your annual debt service from your NOI, and if your number is positive, then we might have a deal. Hope this helps.

Zack Wiest [PA]

Re: 8 UNIT BUILDING - Posted by k Grant

Posted by k Grant on February 15, 2003 at 22:52:41:


In addition to what Franklin said you need to VERIFY the numbers the seller gives you. Verify all utilities and try to see his tax return on it. There is something called a Cap rate. The value of the building is also determined by dividing say a 10% cap rate into the Net Operating Income. That number is about what the building is worth. Check with appraisers and/or realtors to see what cap rates are for your area.


Re: 8 UNIT BUILDING - Posted by Zack W [PA]

Posted by Zack W [PA] on February 16, 2003 at 18:43:51:

K Grant,

Thanks for your advice in response to my post to Franklin. I would not be VERIFYING the numbers that a seller gave me though on a 8 unit, I would be familiar enough with the area and have my OWN numbers in which to work from, and as far as the tax return stuff goes, I feel it is completely useless information. Also, if I am looking at purchasing an 8 unit building, I better not have to take advice from a REALTOR on what the going cap rate for my area is, I better know what cap rate I desire, then find a deal that fits my requirements.

Take Care,
Zack Wiest [PA]