004: The Secret of How to Analyze Apartment Deals

Welcome to the multifamily apartments investing podcast, I am your host Corey Peterson. Today, we are talking about how to analyze deals. The key to a successful apartment deal is understanding how to make sense of the numbers. This is the third part of the six pillars of success series. You need to know when a deal is a good deal and with multifamily apartment investing it is all about the numbers. Putting the numbers into the right system will tell you when a deal is worthwhile or not.

 

Having the right software will make the process a whole lot easier. I’m in the process of creating a Kahuna Underwriting Template. As of the time of this recording it is not available, but it will be soon. I’m taking all of the best of the things that I use and throwing out the things I don’t like about the current systems I use. This is going to be a really great product. Today, I’m giving you a 50,000 foot level view of what makes a deal a deal. Starting with two types of deals the momentum play and a repositioning play. Keep in mind the ultimate goal in each one is always cash flow.

 

Topics on Today’s Episode:

 

• Momentum play or buying a deal that is already doing well, making it a bit better, and carrying on the momentum
• Micro positioning or improving the apartments a little bit with landscaping or other things
• These properties can cash flow the day you buy them and they provide safety
• Repositioning play or doing a very big rehab this can have lot’s of turnover
• This requires lot’s of cash, but can make a lot of money
• A repositioning play involves more risk
• An example of a momentum play deal with 80% leverage
• 80% leverage means getting a loan at 80% LTV and putting 20% down
• Property packet and the financial numbers
• What their numbers are - compared to what you think they should be
• Gross potential rents - total number of rents that you could collect
• Vacancy - percentage of units not rented - determine in dollar amount
• Total concessions like $100 off first month’s rent
• Total rental income
• Other income - coin operated washers, vending machines, etc
• Residential utility bill backs or RUBs are income
• Total income - all of the income the property generates in a year
• Operating expenses - Salaries, advertising, maintenance, office admin, management fees, utilities, insurance, and taxes.
• Deduct operating expenses from the total income and you get net operating income or NOI
• Deduct your loan or debt service and reserve account from the NOI
• CFBT or Cash Flow Before Taxes - you want the biggest amount you can get going into your account
• Taking the time to vet a great property manager who has great systems in place
• Getting your feet wet with a nice solid momentum play

 

Links and Resources Mentioned:

 

• Quickstart Workshop

Quotes:

 

“Cash flow is really what it is all about and what should drive you in all of your decision making in this process.” Corey Peterson

 

“The biggest expense you have on any property is the payroll of the people who work for your property.” Corey Peterson

 

“If utilities such as water are abnormally high, look at things like leaky toilets. They are literally throwing money down the drain.” Corey Peterson

 

Don’t forget to download my Free Workshop Quickstart Video Series, and if you like what you have heard please leave a review on iTunes. On the next episode, I am going to give a quick shout out to some of my reviewers.