Effective Analyzing Techniques for Multi Family Apartment Buildings
Only after the apartment building is under contract should you prepare a comprehensive analysis. Don’t waste time and money before you legally control the apartment building.
THE KEY FIGURE IN EVALUATING Multi family INVESTMENTS
The key figure is the internal rate of return (IRR) after taxes. By comparing this figure with the IRRs from other apartment investments in income producing properties, you will be able to determine the best real estate investment for you.
It is critical to understand why the IRR is important when analyzing apartment buildings. The IRR shows the time value of money, and it reflects cash flows based on present values. Return on investments, in terms of purchasing power, might actually be less, depending on how the cost of living has changed. Knowing the IRR will help to further quantify your investment opportunities.
Your analysis should be based on two types of returns, growth rate and replacement costs. Growth rate projections are based on historical trends. An analysis performed using this rate will give you a conservative IRR. An aggressive IRR is obtained by projecting a future selling price based on future replacement costs. Use both when analyzing apartment building investments. Knowingboth will give you an edge when negotiating.
What you should be looking for is steep growth. Buy apartment buildings below the cost of replacement. Sell them when values are at least equal to or greater than replacement costs. This is how to become wealthy!
A SOUND DOWN-MARKET STRATEGY
In a down market, your strategy is to buy apartment buildings as far below current replacement cost as possible. To determine the current replacement cost, consult local building associations or your local library for the Marshall &Swift Valuation Service (M&SVS). M&SVS provides information on the construction costs of different types of apartment buildings through-out the
