Multifamily Quick Analyzer

Real estate investors use various tools to evaluate potential purchases. A “quick calc” or “back of the envelope” model is designed to quickly inform an investor’s decision to pursue diligence or pass on a multifamily acquisition.

Our “Multifamily Quick Analyzer” is designed to quickly and efficiently evaluate the return potential of a multifamily investment. The model is one page and has functionality to evaluate a stabilized acquisition with value-add component. Use the “Multifamily Quick Analyzer” quick calc before running a complete underwriting.

It is most efficient to populate the model by starting on the left side of the page and inputting assumption from top to bottom.

The Multifamily Quick Analyzer is composed of seven sections:

  1. Overview and Assumptions
  2. Debt Structure
  3. Construction Costs
  4. Sources & Uses
  5. Rent Roll
  6. Estimated Cash Flows
  7. Disposition & Returns

Overview and Assumptions

The “Overview and Assumptions” section of the model is composed of three input sub-sections:

  1. Purchase & Sale Assumptions
  2. Operating Assumptions
  3. Deal Structure

Purchase & Sale Assumptions

The “Purchase & Sale Assumptions” sub-section allows for the input of basic deal metrics, including purchase price, closing costs, reserves, hold period, sale capitalization rate, and sale costs.

Required inputs: Purchase price, hold period, sale capitalization rate

Optional inputs: Closing costs, reserves, and sale costs

The required inputs are necessary to accurately complete the model. The optional inputs can be left blank. When blank, the model assumes a zero value as the input.

Operating Assumptions

The “Operating Assumptions” sub-section is composed of two, optional inputs for revenue and expense growth. If left blank, the model will assume no growth in both revenues and expenses.

Deal Structure

The “Deal Structure” sub-section contains optional inputs that describe a sponsor and limited partner relationship. The model supports a single-tier equity waterfall that informs the return calculations in the Disposition & Returns section. Inputs for an acquisition and disposition fee are also included in this section. However, fee revenue does not impact the sponsor returns calculated in the model.

Debt Structure (Optional)

The “Debt Structure” section supports basic inputs for permanent acquisition debt, including an interest-only period. The loan to value input represents the size of the loan relative to the purchase price. Closing costs, reserves, construction costs, and fees are not included in the calculation. When the “Debt Structure” section is left blank, the model assumes an all-cash transaction.

Construction Costs (Optional)

The “Construction Costs” section allows for the input of planned interior and exterior investment. A 10% contingency is automatically added to the total construction costs. The section shows a breakdown of total costs on an absolute dollar and per unit basis, including interior costs, exterior costs, contingency, and management fee (input in Overview & Assumptions). The Construction Costs section is optional. When left blank, the model assumes no construction plan.

Sources & Uses

The “Sources & Uses” section of the model shows a snapshot of the debt and equity requirements of the proposed deal, as well as a breakdown of costs associated with the purchase. Sources and uses show as absolute dollars, per unit, and as a percentage of totals. In all cases, the source of monies must be equal to the uses of monies.

Rent Roll

The Rent Roll contains inputs for five different unit types. For each unit type, the count (number of units), average square footage, average current rent, and market rent must be input.

The impact of value-add improvements can optionally be input in the premium count and premium increment cells.

Premium Count represents the number of units that will be renovated in the value-add strategy. This is not required to equate to the total number of units.

The premium increment input represents the estimated additional per unit rent that can be charged upon completion of construction.

Premium Market Rent represents the sum of the average market rent and premium increment.

Estimated Cash Flows

The “Estimated Cash Flows” section contains one column of inputs and three columns of calculations. Calculations include the Year 1 pro-forma, per unit pro-forma (Year 1), and sale year pro-forma. The sections walks from potential gross revenue (PGR) to effective gross revenue (EGR), including inputs for the loss to lease bleed off, stabilized vacancy assumption, and other income.

Operating expenses can be input on a line by line basis or as a percentage of effective gross revenue.

Net operating income equates to effective gross revenue less total operating expenses. Asset management fees, reserves, and debt service are subtracted from net operating income to calculate net cash flow.

Debt service coverage is shown in the estimated cash flows section, calculated by dividing net operating income by debt service. Yield, or cash on cash return, is shown in this section and calculated by dividing net cash flow by the equity investment, calculated in Sources & Uses. 

Disposition & Returns

The “Disposition & Returns” section is split into two parts:

  • A breakdown of net proceeds upon sale of the property, and
  • Return metrics for the project, investors, and sponsor.

The property’s terminal value is calculated by dividing the projected net operating income in the year after the sale by the sale cap rate input in Overview & Assumptions. The sale price is reduced by disposition costs, the sponsor’s disposition fee, and debt defeasance to calculate the net proceeds at sale.

Net proceeds, internal rate of return (IRR), and equity multiple (EMx) are calculated in the return section. Returns are calculated for the total project, sponsor, and investors, given the inputs in the Overview & Assumptions section.

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