Quick Apartment Analyzer
The Easy Way To Save Time Evaluating Deals
Quick Apartment Analyzer Instructions
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.
Multifamily University Quick Apartment Analyzer is designed to quickly and efficiently evaluate the return potential of a multifamily investment. It should be used before investing time and resources in a full detailed underwriting of a potential acquisition.
It is most efficient to populate the model by starting on the left side of the page and inputting assumption from top to bottom.
Quick Apartment Analyzer is composed of seven sections:
- Overview and Assumptions
- Rent Roll
- Debt Structure
- Deal Structure
- Renovation Costs
- Market Demographics
- Sources & Uses
- Estimated Cash Flows
- Disposition & Returns
Overview and Assumptions
The “Overview and Assumptions” section of the model is composed of two input sub-sections:
- Purchase & Sale Assumptions
- Operating Assumptions
Purchase & Sale Assumptions
The “Purchase & Sale Assumptions” sub-section allows for the input of basic deal metrics, including purchase price, closing costs (expressed as %), reserves per unit, hold period, sale / exit cap rate, and sale costs (expressed as %).
Required inputs: Purchase price, hold period, sale / exit cap 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.
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.
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.
Deal Structure (Optional)
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.
Renovation Costs (Optional)
Market Demographics (Optional)
The Market Demographics box is optional – but is a reminder that good deal analysis includes looking at these three key indicators for a property/metro: median household income, population growth and job growth. If you mouse over the red triangles you will see notes for where to get data and what you are looking for as follows:
Median Household Income
Median Household Income for city ir zip code – target of $40k (note this info can be found on citydata.com.) Look for a 20% increase in median household income since 2000. Bonus point if its 30% or greater.
Look for cities with Population change since 2000 of over 6% if the city is over a million people. Look for population growth of over 10% if the city is under a million. Look for 20%-30% growth if city is under half a million. Bonus point if its 40% or greater.. Year 2000 population is no longer available in city-data. To get the 2000 population value for your city – google the city name and “population”.
Look up Job Growth in your favorite tool OR go to : https://www.deptofnumbers.com/employment/metros/. Job growth is key to both appreciation and rent growth. Under 1% is considered anemic, you should avoid those cities. Job growth is dependent on city size. Los Angeles at 0.85% is better than Bakersfield at 0.86%, because L.A. created 14 times the jobs that Bakersfield did. For larger cities, its ok to be a little bit under 1%, but of course higher numbers are better. Keep the number of jobs in mind. If Killeen, TX creates 500 jobs, half of those could come from a single employer. Keep in mind that this table only looks at 1 year of job growth. It’s an important data point, but good cities can have a rough year.
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.
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
Net operating income is calculated by subtracting the effective gross revenue by 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
- 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.