Invest Like a Billionaire Must Know Metrics When Evaluating an Investment
9 snips
Dec 9, 2025 Discover how to quickly evaluate multifamily investment opportunities with essential metrics. Learn about the importance of a high-level smell test to gauge a business plan's viability. Dive into cap rates, distinguishing between going-in and exit cap rates, and their impact on property value. Understand yield on cost for value-add deals and how debt yield shapes lender perspectives. Gain insights into the most sensitive inputs affecting underwriting outcomes, and refine your approach by asking smarter questions.
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Do A High-Level Smell Test
- Do a high-level gut check: confirm the business plan seems achievable and the pieces fit together.
- Ask if market rents, timeline, comp set, and capital structure support the plan before digging into numbers.
Cap Rate Has Multiple Meanings
- Cap rate equals net operating income divided by property value, but it has multiple interpretations like going-in and reversion cap rates.
- Reversion (exit) cap rate matters most for valuation at sale and for how much return comes from appreciation.
Test Exit Cap Rate Versus Debt Costs
- Check whether the exit cap rate will leave the next buyer in positive leverage compared with debt costs.
- Avoid deals where cap rate is lower than likely interest rates because that produces negative leverage for future buyers.