How to Analyze a Multifamily Deal in Minutes With One Calculator

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0:00 Hello and welcome to my office.
0:01 This is Multi-Family Strategy.
0:02 If you're watching on YouTube, I'm gonna share a free calculator with you, And this actual
calculator doesn't just show, it a good deal or is it a bad deal?
0:10 It shows where it deals at, where it's headed and helps you structure, well, how would I
fund this?
0:15 By the way, this is how I bought hundreds of units starting with no money.
0:18 So I'll dive right in.
0:20 But if you wanna go below, there's a link to our free school community.
0:22 The calculator lives there also for free.
0:24 You guys can sign up now.
0:26 That community has funded hundreds and hundreds of units.
0:30 We did $21 million of deals funded through that page last year.
0:33 We're shooting for a hundred this year and we are well on our way.
0:36 So check it out.
0:37 Join the community for free.
0:38 Download this calculator because this is the tool that made me the last $5 million.
0:44 It can do the same for you.
0:45 All right, we're gonna do a real example of a very, very, very simple deal.
0:48 Now this is very similar to other deals that I have done.
0:51 I'm using made up numbers, but they're very similar to real deals I've done.
0:54 It'll be fun to watch what they actually look like as I haven't done a 10 unit deal in
some time.
0:59 I've been buying a lot bigger, but this is an example of something that I would do.
1:03 10 units, million dollars, $100,000 a door, lot of my markets, that's a great deal.
1:08 Seller finance, down payment of 10%.
1:10 Majority of my deals have been seller-financed, not all of them, but 10 % is very common.
1:14 By the way, can do deals zero down, you can do 50 % down, though I don't recommend it.
1:19 When you're putting together your deals, seller-financed, you get to choose all of the
terms, including the down payment.
1:24 Closing cost on a seller-financed deal, I wrote 10,000.
1:26 It's often less on a million dollar transaction.
1:28 You don't have fees to the lender as you are actually buying this property from the
current owner.
1:33 But I found that's a good conservative number.
1:34 Loan interest rate is similar to the bank's market.
1:37 Rate today, 6.5%.
1:38 However, it's seller financed.
1:40 If I negotiated three, I could get three.
1:42 These seem like feasible numbers and something that would likely be accepted.
1:46 Market cap rate, I chose seven.
1:47 I'm investing in six cap markets, but for this example, all that does is help with
valuation later.
1:53 If you're not familiar with the cap rate, don't worry about it too much right now.
1:56 I'll dive in a little deeper on the next tab.
1:58 Property taxes.
1:59 I'm pretending this deal is in Texas.
2:01 where the average property tax is 1.8 % of the purchase price.
2:06 Now, if I was buying in Washington state, it'd be closer to 1.1.
2:09 It's different around the country, but it's very easy to look up the multiple that people
use to see what the county appraiser will appraise your property at after you purchase.
2:17 Just remember, it is not the same as the prior owner was paying.
2:20 It is based off of what you buy the property for.
2:22 Your taxes will change.
2:24 Don't use old numbers.
2:25 Annual insurance is the only other thing you need to get quoted, and it's unbelievably
easy.
2:29 Go to an insurance broker, call them, let them know what you're buying, give them the
details.
2:33 They usually want to know age of building, how old were the roofs, how many roofs.
2:37 Put together your actual opportunity.
2:39 Go ahead, get a soft quote for what it will be.
2:42 My last 10 plex was 12,000 a year.
2:44 I'm gonna write this at 14 to be conservative.
2:46 Now, when I fill this out on the calculator, this auto-populates.
2:50 So if I said this was $0 rent, all of these would move to zero because there is no input.
2:54 Though, lot of two beds.
2:56 Rent for 1,050 and that's below current market rate.
2:59 We'll call it 1,050.
3:00 This is what we're buying.
3:01 Management.
3:02 In the state of Texas, I own a property management company.
3:05 I charge 6 % to me and my clients.
3:08 Yes, that is inexpensive.
3:09 Usually it's 8 to 10.
3:10 On this one, I would charge myself six.
3:12 This is an actual number.
3:13 Maintenance and repair.
3:14 Since we're making up the numbers, this tends to be just about true for me on most deals.
3:17 About $100 per door per month is the average.
3:20 Now some months will be much more expensive.
3:21 Some will have no real maintenance expenses, but overall it's about 1,200 per door on a
standard property built between 1990 and we'll say 2010.
3:32 If it's an older building, you can round a little bit higher.
3:35 If it's a newer building, you can round a little lower.
3:36 Landscaping, about $200.
3:38 It's fictitious property.
3:39 I see that number on a lot of deals.
3:40 Use the actuals if you have them.
3:42 Vacancy, you always factor for vacancy.
3:45 In this example, it's 100 % occupied building.
3:47 I'm going to use 5 % vacancy factor to take $575 off of my income.
3:53 Utilities, I'm gonna say tenants are paying utilities, but there are some common areas on
this property and a laundry room where I have to some of the utilities.
4:00 So it's low, but it's $100 a month.
4:02 These are our inputs.
4:04 This is the deal.
4:04 This is why I love the rapid analysis calculator, by the way.
4:07 This is so quick and easy to do.
4:09 You put in your inputs.
4:10 If you need another expense in here, just add it to any of the monthly expenses.
4:14 Say you're also paying for internet, add it to utilities.
4:17 Very, very simple.
4:19 If you have additional renovation costs, add it to closing costs, because that is money
that you need to have upfront to your deal, but it doesn't affect your loan.
4:26 That's the rules of the game.
4:27 That's how you use the inputs tab.
4:28 On this fictitious deal, we cashflow 6.32%.
4:32 Here's our deal details, the expenses, the income, our net number.
4:37 We are cash flowing day one out of the gates on this hypothetical deal, measly $580 on a
$110,000 initial investment.
4:44 That is not a fantastic return on investment.
4:47 To be completely honest, it's on the low side.
4:49 However, this deal does cash flow day one, which means we have some good news.
4:53 This deal could work.
4:55 I really want to get to the exit tabs where I see, well, where's this deal headed?
4:58 Where it's at right now on long-term debt, we would close this deal and we'd get paid
every day.
5:03 Now, maybe not a lot.
5:04 but we would get paid from close to completion.
5:07 We'd be in a pretty good spot.
5:09 Cap rate, which is again, that's our return on cash if we bought the deal in cash.
5:13 For money invested into the deal, it yields 7.5%.
5:17 Market average is seven, which means we're actually buying at a little bit of a discount.
5:22 In fact, the valuation would be about a million 75 and we're buying for a million.
5:26 We're getting about $75,000 off this deal.
5:28 It's not screaming on price.
5:30 but it's a good interest rate, it's a low down payment.
5:32 I generally like these numbers.
5:34 This is not super strong, but a doable deal depending on where it's headed.
5:38 You need to have some upside to make this great deal.
5:40 Debt service coverage ratio, banks like to see 1.25 or higher.
5:44 Do have a note here, totally 1.1, which means at this price and this interest, a bank
would be very unlikely to want to place this loan unless you had an interest only period
5:54 or you had very significant upside.
5:56 Loan factor rate is your cost of debt.
5:58 So it's your principal plus your interest divided by the loan amount.
6:01 All this is good for is you can compare the true cost of debt to the true yield on every
dollar that you invest into this deal.
6:08 Notice it's a slightly negative return on debt.
6:10 The more money we borrow, the lower our cash and cash return goes.
6:14 We like to see this as a positive number.
6:16 For me, this deal isn't quite strong enough day one.
6:19 I would need to make some adjustment, either to the price, the interest.
6:23 The down payment, if you put more down, you cash flow more, but it's harder to multiply
more money.
6:28 I would say the answer on this one would be 6 % interest.
6:31 That probably kicks us over the hump.
6:33 We have a positive spread here.
6:34 We're not quite bankable, but I now like this at 9.52%.
6:38 I'm liking this deal where I'm likely to offer this to the seller.
6:42 The goal is that you can easily come in and use the guess and check method.
6:45 Hey, we're close.
6:46 I'd like to see a little more cash flow.
6:48 We need to borrow less money or we need to borrow cheaper.
6:50 I opted for cheaper here.
6:52 Now onto the fun part, the upside.
6:53 So here's the same deal.
6:55 Most of these inputs will automatically pull through for you.
6:58 Same purchase, there's your down payment.
6:59 I added $30,000 here because I'm assuming we're going to do at least 30,000 in renovation.
7:04 These are heavier unit terms, replacing appliances.
7:06 This isn't a huge budget, but it is money that I have in the deal and it affects the cash
on cash return.
7:11 Remember we negotiated 6%, so I'll update that.
7:15 Market cap rate, we're still going to call it a seven.
7:16 Let's say market conditions haven't changed.
7:18 This was a seven year note, but the market's the same place that it is, nice and
conservative.
7:23 Taxes have gone up a little bit.
7:24 Insurance has gone up a little bit.
7:26 Incomes.
7:27 Let's say we only went up $200 in rent over seven years.
7:30 It should be much, much more.
7:31 But let's say it's really conservative.
7:33 We'll get to $1,350 at least.
7:35 Maintenance and repair, material costs has gone up.
7:38 Inflation inflated 10%.
7:40 It's a little bit more expensive.
7:41 Utilities are about the same.
7:42 Landscape about the same.
7:43 Income went up a bit.
7:44 The exit analysis is telling me at the end of my deal, how much money is there that I can
pull out of the deal?
7:50 How high have I managed to get my cash flows?
7:53 Where's the deal stand at that point?
7:55 15 % cash on cash, meaning for the 140 I now have invested, it's yielding $21,000 or 15 %
return on investment.
8:03 I've increased my cap rate by about a point on my deal.
8:06 Market cap is still the same.
8:08 Cost of debt is still the same because it's the same debt product.
8:11 Our return on debt is now a positive spread.
8:13 Everything in here is positive.
8:14 DSCR is above 1.25, which is always the goal.
8:17 This is starting to look really solid.
8:19 This is a good deal.
8:20 It's not a screaming deal.
8:22 This is a pretty good deal.
8:23 We've got the value up a couple hundred thousand dollars, which means if we went in for 75
% loan to value on a refinance, we would basically be able to pull out $20,000.
8:34 Notice that's not enough to reimburse the 140 you have into it.
8:38 So it's not a screaming deal.
8:40 You're not creating a bunch new value here.
8:42 Your cashflow is pretty strong.
8:44 When I'm looking at this between the positive but not super strong cashflow day one and
the good but not unbelievable cashflow on this deal, know, $1.75, $1,000 a month, I
9:02 probably wouldn't do this deal the way that it's written.
9:04 It would be hard to raise capital for
9:06 If you had 140 sitting around, this would probably be a great place to park it at a 15 %
yield.
9:10 You'd be a happy camper.
9:12 I would have trouble raising this money for this deal, because there's just not that high
of a return.
9:18 However, we can go back in time here.
9:20 We were really conservative on this number.
9:21 What if we found that really we can get two beds to 1550?
9:24 How does that affect our deal?
9:26 We dive back in.
9:27 Oh, wait a second.
9:28 Now we're cash flowing almost 30 % cash on cash.
9:31 That's excellent.
9:32 Three and a half grand a month, $41,000 a year.
9:35 A little over every three years, all of our initial capital cash flows to us.
9:38 On a seven year note, we're gonna get paid all of our money back more than two times over
before the end of the note.
9:45 At the end of that note,
9:46 using 75 % as our assumption, we could still pull out an additional $235 if we wanted to
just absolutely max what we could pull out.
9:54 That may or may not be right for the deal, but you were able to do this because you
created half a million dollars in equity and that is equity that you can now borrow
10:01 against at 75 % loan value.
10:03 You already were 10 % down, so the new 25 % down loan, you're set.
10:08 Return on debt, every borrowed dollar is yielding 3.5%.
10:11 Each dollar invested in the deal is
10:15 10.5%, making a fantastic blended return.
10:18 DSCR is high.
10:20 This is a great deal, and now I love this deal.
10:23 This is one where it would be easy to raise for.
10:24 I have a clear path to get the income up.
10:26 And this tells me when cashflow is low, day one, and it's high in the future, I want to
preserve cashflow in the beginning.
10:34 I want to offer a smaller return, and I want to incentivize any investors or any debt.
10:39 to have a more expensive higher yield to them in the future.
10:42 This could be done with a preferred return and then splitting the cashflow up to a certain
amount.
10:47 This could be, hey, we don't do any cashflow distributions in year one, but we're gonna
move to 12 % cashflow to the investor, what we call a preferred return.
10:57 On this number, you can also support additional debt.
11:00 So if you can get a second position loan for the 100,000, I would do this without
partners.
11:05 What I'm starting to see here though,
11:07 is here's where I am, here's where I'm going, what are my options?
11:11 What if I kept all this cash flow for myself, someone brought in the $140, and I cashed
them out at $235 in the future?
11:18 That's a good return on investment.
11:20 Maybe not over seven years, but what if I could get a return like this closer to year
four?
11:25 Is an investor happy to get that return on that investment?
11:30 And if not, do we share some of the cash flow and some of the equity?
11:34 You can either multiply their money on a cash out or you can pay them monthly out of cash
flow.
11:39 If the deal looks like this, this is where it starts to work.
11:42 This is how you use the calculator.
11:43 By the way, I'm gonna caveat this, exit math doesn't mean we're selling the deal.
11:47 Always buy deals that you can afford to hold and that buy themselves.
11:51 The exit is when we exit the debt product that we have, or if we have a partnership and
we're buying out a partner, it's when our existing deal structure changes.
11:59 Where does the LLC stand and where does my property, how does it actually perform and what
is it supposed to be worth at the end of my project when I go to seek new financing and
12:09 own the building without a partner or with a new debt product?
12:13 That is what I'm trying to look at here.
12:15 Between day one and exit analysis with these simple inputs, you can very, very, very
quickly look at any deal and see roughly where the goalposts are so you can start to
12:24 structure your offer, get it under contract and start due diligence.
12:28 That is the goal here.
12:29 So the goal and why I'm sharing this is because I want everyone to have immediate access.
12:34 This calculator is the only calculator I've used to put things under contract.
12:37 Sure, we've gotten into deeper analysis later in the deal, but this is enough for you to
look at where is the deal at?
12:44 Where is it going?
12:45 Conservatively, how do I want to structure this?
12:48 Do I think this is going to work?
12:49 Congratulations, you know enough with this calculator to write the offer.
12:53 Again,
12:54 If you do not have this calculator yet, you can go down into the...
12:57 Video description, click the link to the free school community, join the multifamily
strategy free community, get the free calculator, be a member of the club.
13:04 Maybe even meet some other people in the market.
13:06 Check it out.
13:06 Thank you for watching.
13:08 That's an episode.
13:09 See you on the next one.