Real Estate Analysis Multi Family Real Estate Investment Analysis: The ONLY Guide You’ll Need by Sylvia Shalhout September 8, 2018September 6, 2018 by Sylvia Shalhout September 8, 2018September 6, 2018 Looking at multi family homes for sale to make money in real estate? How about the one down the street? Or maybe there are better multi family investment properties somewhere in Los Angeles or Baltimore? With so many choices available on the real estate market, how are you going to find the best investment property? The answer is multi family real estate investment analysis. And we’re here to guide you on how to get it done. Are You Ready for Investing in Multi Family Real Estate? While you may not consider this question as a part of multi family real estate investment analysis, it really needs to be. Buying multi family homes for investment purposes does require a bit of finesse. While it can be 100% learned, you have to be prepared for the process of it all. As you’ll see from this guide alone, multi family real estate investment analysis will take a lot of time for thorough research and reliable results. (Of course, we have an even more reliable shortcut! Keep reading to take advantage of it.) Once you find an investment property, then comes the real estate investment loans and getting approved (Learn how to buy multi family property with little or no money here). After that, you have to think about the property management. Do you want to take it on yourself and become a landlord or hire a property manager? So before you get into investment property analysis or even real estate market analysis, analyze your ability to become a real estate investor of multi family homes. Read this to be sure you’re ready: 6 Questions to Ask Yourself Before Buying Multi Family Homes for Investment Looking at the Location of a Multi Family Home So, back to where to invest in real estate for multi family homes. The best real estate markets are those where people are moving to the location in mass and looking to rent apartments. These are typically larger cities where demand for multi family homes is much higher than for single family homes. This can be due to a number of reasons: Affordability of rental rates based on property type Type of tenants Availability of land limiting real estate development of a certain type of residential property What mostly drives demand for multi family real estate in these cities is typically the job sector and economy. Look for cities with high tech-based industries or where major companies are moving/expanding to. These can make for some of the best places to invest in real estate for long term rentals. Multi family homes for sale can also be used with the Airbnb investment strategy. This is because most Airbnb guests are looking for smaller spaces near city centers where all the hottest tourist attractions are. In this case, you need to find a city that has lax regulations on short term rentals as well as plenty of tourists visiting, preferably year round. So, LA or Baltimore? Echo Park or Hollywood? Inner Harbor or Mount Vernon? A couple of hours of online market research will help you decide which major city has a healthy growing economy, job market and a high number of visitors. But you still need to make sure it’s a viable location for real estate investing. Even more important (and harder to find in a quick Google search) is narrowing down the exact neighborhood that’s best for buying an investment property. Now is when I start revealing those reliable shortcuts for investing in multi family real estate properties. By looking at data from Mashvisor’s investment property calculator, here are some of the top real estate markets for buying multi family property: Goldens Bridge, New York Long Beach, California Los Angeles, California Philadelphia, Pennsylvania Marco Island, Florida Baltimore, Maryland Hollywood, Florida Go ahead and click here now to find multi family investment properties in these markets with cash on cash return as high as 14%! Learn about more cities: Florida: The Best Place to Buy Multi Family Properties in 2018 At Mashvisor’s knowledge center, a real estate investor can always find the best place to buy multi family properties with real estate data on each city including cash on cash return, cap rate, Airbnb occupancy rate, and median property price. The above 7 cities are just a taste! Even if you decide on a real estate market, what are the best neighborhoods? Which neighborhoods will actually have investment properties you can afford with a good return on investment? This is the step of multi family real estate investment analysis where you need Mashvisor’s heatmap. Just take a look at what it can do for yourself: With the color coding, a real estate investor can find the best neighborhoods in a city with a suitable price, high cash on cash return, rental income and occupancy rate! And even better, these values are available for either an Airbnb or traditional rental strategy with multi family homes. Essentially, neighborhood analysis becomes a breeze with this real estate investment tool. Want to use this heatmap right now? Then click here to start looking for the best neighborhoods in your city of choice. Choosing an Investment Property Class The previous step of multi family real estate investment analysis is not complete without diving into property classes. To break it down, there are four property classes, A-D. The most profitable investments are those multi family homes for sale that are found in a location of either similar or higher class. For example, a Class B property is one that has been built in the last 20 years. There is some deferred maintenance, the expected rental income is high, and there is a lot of room for real estate appreciation. For the best return on investment, this multi family property should be in a Class B neighborhood (an older neighborhood that is part of a stable real estate market) or a Class A neighborhood (a much newer neighborhood with a high potential for growth). Class B properties in a Class C neighborhood would not typically make for the best real estate investments. You can learn about the property classes of multi family homes here. Of course, property classes can be determined through the process of multi family real estate investment analysis. Specifically, the kind of details you need can be found with a combination of investment property analysis and a thorough home inspection. With investment property analysis, a real estate investor dives deeper into the details of the exact neighborhood of a multi family home. A home inspection will reveal what condition the investment property is in. The Calculations of Multi Family Real Estate Investment Analysis The last aspect of evaluating multi family investment properties is figuring out the rental expenses and the ROI. This is most commonly done through three calculations. Cash Flow The cash flow is simply the amount of money that a multi family property actually makes. A real estate investor will have to gather data on the expected rental income and estimate the total expenses for the investment property. How to Calculate Cash Flow: Cash Flow= Annual Rental Income- Total Rental Expenses Cap Rate The cap rate is a return on investment metric you might use earlier when comparing multiple rental properties. Still, it is useful to take a look at the cap rate during the multi family real estate investment analysis of an individual property to see how it compares to the rest of the real estate market. The cap rate shows an investor the percentage of return on investment based on the rental income compared to the price of the property. How to Calculate Cap Rate: Cap Rate= Net Operating Income/ Property Price The Net Operating Income (NOI) is the same as the cash flow calculated above. Keep in mind that with the cap rate formula, no investment property financing costs are included in the NOI. Learn more: What Is a Cap Rate and How Do You Calculate It? Cash on Cash Return The cash on cash return can be understood from its name. It is the ratio of cash a multi family investment property generates to the actual cash investment coming from your pocket. While investment property financing costs are included in the NOI in the cash on cash return formula below, the cash investment doesn’t include any borrowed money. How to Calculate Cash on Cash Return: Cash on Cash Return= NOI/ Total Cash Investment Now, what is a good ROI for multi family homes? Read “What Is a Good ROI for Investing in Income Properties?” to complete this part of your multi family real estate investment analysis. Try a Real Estate Investment Calculator for Multi Family Real Estate Investment Analysis At this point, you are either in the mindset that you can tackle multi family real estate investment analysis or maybe you’re overwhelmed by it all. Either way, I’m sure a shortcut is always welcome. And that shortcut is Mashvisor’s real estate investment calculator. You’ve already seen the power of the heatmap tool which is part of Mashvisor’s investment calculator. See how it can help you with the calculations of multi family real estate investment analysis: Once you find the right neighborhood, this real estate investment tool will provide you with the key values (cash flow, cap rate, cash on cash return, occupancy rate, etc.) that you need to choose the best investment property. This saves the time of gathering data on a bunch of different rental properties only to find out they are all worthless. With the investment property calculator, you can narrow down your choice to one or two properties. Continuing in-depth research will allow you to enter in unique values about rental expenses and mortgage payments for the most accurate results. It’s a quick and easy way to carry out a complete multi family real estate investment analysis for successful real estate investing. Give it a try! To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL Baltimore MDGoldens Bridge NYHollywood FLLong Beach CALos Angeles CAMarco Island FLPhiladelphia PA 1 FacebookTwitterGoogle +PinterestLinkedin Sylvia Shalhout Sylvia was the Content Marketing Manager at Mashvisor. As a real estate writer, she has been covering topics for the beginner and advanced real estate investor, helping them make smarter decisions as well as real estate agents looking to take their business to the next level. 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