Multifamily Investment Guide
Why 5+ Units is Different
- Commercial financing: DSCR loans, not Fannie Mae
- Valued on income: NOI and cap rate, not comps
- Professional management: Usually required at scale
- Higher down payments: 25-30% typical
Key Metrics
- Cap Rate: NOI / Purchase Price (5-8% typical)
- DSCR: NOI / Debt Service (lenders want 1.20-1.25+)
- Price per Unit: Compare to market comps
- GRM: Price / Annual Gross Rent (10-15x typical)
- Expense Ratio: Expenses / EGI (40-50% normal)
Typical Expense Ratios
- Small (5-20 units): 45-55%
- Medium (20-50 units): 40-50%
- Large (50+ units): 35-45%
- Class A/B: Lower ratios (better efficiency)
- Class C/D: Higher ratios (more turnover, repairs)
Due Diligence Checklist
- Verify rent roll (actual vs. pro forma)
- Review T12 (trailing 12 months) financials
- Inspect all units, not just samples
- Check for deferred maintenance
- Understand lease terms and expirations
- Review utility billing (RUBS potential?)