I’ve been in the multifamily real estate game for a while. When I first transitioned from flipping houses to investing in apartments in 2011, it changed my life – but it was also a little frustrating.
The rules I lived by in single-family real estate to value a property didn’t apply anymore.
So in today’s article, I’m diving into the key differences between valuing single-family and multifamily real estate and the tools you need to analyze those deals quickly (in 10 minutes) and confidently.
Why Single-Family Rules Don’t Apply to Multifamily Deals
If you’ve flipped houses or managed rentals, you’ve probably heard rules of thumb like the 70% rule or the 2% rule. These are great for single-family properties:
- The 70% Rule: You buy a flip at 70% of its after-repair value (ARV), minus the cost of repairs.
- The 2% Rule: Your monthly rent should be at least 2% of the purchase price for a rental to cash flow.
These shortcuts work well in the single-family world, but they don’t hold up (they’re actually inaccurate) when you apply them to multifamily properties.
Why? Because multifamily real estate operates more like a business, and its value is based on income—not market comps.
The Key to Evaluating Multifamily Properties: NOI and Cap Rate
The heart of multifamily investing lies in two critical concepts: Net Operating Income (NOI) and Capitalization Rate (Cap Rate). Let’s break these down:
- Net Operating Income (NOI)
This is your property’s income after expenses. Think of it as the profit your property generates before factoring in financing costs.
- NOI = Total Income – Operating Expenses
- Cap Rate (Capitalization Rate)
The cap rate reflects the return an investor can expect in a specific market. It varies by location and property type.
Properties in desirable neighborhoods typically have lower cap rates, while those in riskier areas have higher ones.
Here’s the formula for calculating value using only these two numbers:
Value = NOI ÷ Cap Rate
Putting the Formula to Work
Imagine you’re looking at a property with an NOI of $50,000 in an area with a 6% cap rate. Using the formula:
Value = NOI / Cap Rate
= 50,0000 / 0.6
= 833,000
That means this property is worth $833,000.
Here’s where it gets interesting: if the cap rate increases, the property’s value decreases.
Similarly, if you can increase the NOI — whether it’s by raising rents, cutting expenses, or adding new revenue streams — you can significantly boost the property’s value.
Understanding NOI and cap rates allows you to evaluate properties like a pro. It also opens the door to scaling your portfolio faster. Multifamily investing is a numbers game. When you can confidently analyze deals, you’ll build credibility with brokers and start getting access to off-market opportunities.
The 10-Minute Offer System
Analyzing multifamily deals used to take 4 hours per property. I did not have the time for that, and I bet you don’t either. If you want to scale quickly and spend less time on deal analysis, I developed a system to evaluate deals in 10 minutes or less.
The process is simple:
- Calculate the NOI.
- Find the cap rate for the market (ask your broker or look at recent sales).
- Use the formula to determine the property’s value.
- Decide if the asking price aligns with your target returns.
This system saves time and helps you submit offers faster, which brokers love. Fast offers show you’re serious, and that builds trust—leading to better deals.
If you want to dive deeper into this method, check out my 10-Minute Offer System ebook. It’s packed with examples and strategies to get you started.
Watch my full video here to get the download.
Multifamily investing might seem intimidating at first, but it doesn’t have to be. With tools like NOI, cap rates, and the 10-Minute Offer System, you can transition confidently from single-family to multifamily.
Here’s your action plan:
- Learn the Basics: Understand NOI and cap rates.
- Practice the Formula: Start analyzing deals—even if you’re not ready to buy yet.
- Build Broker Relationships: Use your newfound skills to connect with brokers and explore opportunities.
Switching to multifamily real estate was one of the best decisions I ever made, but it came with a learning curve. My goal is to shorten that curve for you.
I hope this helped you learn how to analyze deals in as little as 10 minutes – not the 4 hours I used to spend on it.
To your success,
Michael Blank
