Entering in the world of real state investing normally means single-house investing for most people, which refers to owning a single unit housing property. The benefits that this form of investing has are real, but when you think you´ve known the basics in real estate investing, you should try joining the multifamily investing league.
Multifamily Investment Property deal analysis
The biggest difference there is between these two is that MF investing is able to boost your profits while not having deal with vacancy issues: the money flow can have your back whenever some tenant decides to leave. However, nobody said this would be easy, but one of the main aspects you´ll need is proper decision making, and this can only happen when you have a thorough research process before buying anything, here we give you three tips about this subject.
50% Profit formula
This trick can solve a lot of your main doubts if you plan on starting your first multifamily investment deal. You just need to calculate possible incoming money and the money you will have to pay (expenses). The formula to use if you don´t know how to proper calculate the expenses is simply to halve the income, and then you would have the expenses you need to cover. The difference between the income and the expenses would be the net operating income (NOI), which means the money you will be able to use from your multifamily investment.
Calculate Cash Flow
There´s other features that you need to take into consideration while handling all this cash, what about the mortgage? We already know that a mortgage refers to a debt that buyers have when they don´t have enough money to pay for a property. You have your NOI minus the monthly mortgage figure, these results in the money you can actually save monthly (cash flow).
Imagine you have a rental income of 2000$. The expenses are calculated with the 50% formula, which is 1000$, we´ve got 1000$ left, which would be our NOI. But if we have a monthly mortgage of 805$, that would mean that our cash flow is 195$ each month.
Figure out your cap rate
If you want to the yield percentage your multifamily investment is going to have, then you should take a look at the capitalization rate, also known as cap rate. This is a yearly figure expressed on a percentage, you calculate it by multiplying your NOI twelve times to have a yearly NOI, and then you divide it by the total mortgage, which will give you a percentage. In our previous case, the cap rate would be 8%, which means the actual growing profit you will have in your investment.
Even though there are more factors in the multifamily investing process, math will bring it all down to brass stacks. It is very important to know these values to have a safe investment.