Multi-family deal analysis isn't complicated.
It feels complicated because the templates and courses you find online make it look like a Bloomberg terminal. Forty inputs. Sixty outputs. Tabs you don't understand. Acronyms (DSCR, IRR, NOI, GRM) thrown at you like passwords.
The reality is much simpler. Multi-family deal analysis is eight numbers and three traps. If you can work through those in under 20 minutes, you can screen out 90 percent of bad deals without ever asking the seller for additional documentation.
This article walks through the framework I actually use. The same one I've used to underwrite small multi-family for the better part of two decades and the same one I teach our remote operator to use when filtering deals for review.
The eight numbers that matter
Work these in order. Each one feeds the next.
1. Gross scheduled income
What would the property collect in rent every month if every unit were rented at the current asking rate, with no vacancy?
Get this from the rent roll. If the seller doesn't have a clean rent roll, that's a yellow flag. Make them produce one. The rent roll should show every unit, the current tenant (or vacant), the lease term, the lease end date, and the current rent.
Sum it up. Multiply by 12. That's your gross scheduled income.
2. Operating expenses
What does it cost to operate the property in a normal year? Use one of two methods.
Method 1: Use the seller's actual trailing 12 months of operating expenses. Property taxes, insurance, utilities the owner pays, lawn care, maintenance, property management fees, vacancy reserves, capital expense reserves, legal, accounting, supplies, marketing, turnover costs.
Method 2: If the seller's expense data is missing or unreliable (it often is), use 40 to 50 percent of gross income as your expense ratio. Newer, well-maintained buildings with tenants paying utilities trend toward 40 percent. Older buildings with owner-paid utilities and higher turnover trend toward 50 percent.
Be honest about which end of that range your deal sits on. Most first-time multi-family buyers under-estimate operating expenses by 5 to 10 percentage points, which is the difference between cash flow and a money pit.
3. Net operating income (NOI)
Gross scheduled income, minus operating expenses, minus vacancy allowance (use 7 percent of gross unless the local market data tells you otherwise).
That's your NOI. The single most important number in commercial real estate. Cap rates, valuations, and lender underwriting all flow from this.
4. Debt service
What do the loan payments look like at your purchase price, your down payment, and current rates?
Use a mortgage calculator. Run the actual interest rate you'll get (not the rate from two years ago). Include taxes and insurance if they're escrowed. The annual debt service is what you'll pay the bank every year.
5. Cash flow
NOI minus annual debt service. That's the cash the property generates after the bank is paid.
If this number is negative or thin, the deal doesn't work at this price. Don't try to justify it. Move on or offer less.
6. Cash-on-cash return
Annual cash flow divided by total cash invested (down payment, closing costs, immediate capital improvements).
This is your real yield. The number you can compare directly across deals and asset classes. My buy box used to be 15 percent cash-on-cash. (If you haven't defined yours yet, start with how to underwrite a multifamily deal, which walks through the six criteria.) In today's rate environment, 10 percent is more realistic in most markets and 12 to 15 percent is achievable in better deals with some value-add upside.
If cash-on-cash is under 8 percent, the deal needs strong appreciation potential or a clear value-add to be worth doing. Otherwise, your money is better in an index fund. For a sense of what these returns look like on real closed deals, I shared actual numbers from my own portfolio.
7. Cap rate
NOI divided by purchase price. This tells you the unlevered return on the property as it stands today.
Compare this to the local market cap rate for similar properties. If you're buying at a 6 percent cap in a market where similar properties trade at 7 to 8 percent, you're overpaying. If you're buying at a 9 percent cap where the market is 7, you've either found a real deal or there's something wrong with the property you haven't found yet.
A high cap rate without a clear reason should make you suspicious, not excited.
8. The value-add upside
What can you change about the property to increase its income, lower its expenses, or both? And what would those changes cost?
Common value-adds for small multi-family:
- Below-market rents that can be raised with cosmetic updates
- Tenant-paid utilities that the current owner is paying
- Coin laundry, parking, storage, or pet fees the current owner isn't charging
- A laundry renovation that lets you push the unit rents
- Capital improvements that allow you to refinance to pull out equity
A deal-analysis tool like DoorProfit can run this scenario and pull the neighborhood crime data alongside it, so you screen the numbers and the location in one pass. Build the value-add scenario as a separate column in your spreadsheet. What does the property earn after you've executed your plan? What does it cost to get there? What's the timeline?
If the value-add doesn't materially improve the returns, it's not a value-add deal. It's an asset that needs work just to keep up.
The three traps that kill deals
The numbers are the easy part. The traps are where most investors lose money.
Trap 1: The seller's pro forma
A pro forma is a projection of what the property could earn under perfect conditions and an optimistic owner. Sellers love to anchor on the pro forma because it's the highest defensible number. Buyers who anchor there end up overpaying.
Rule: never underwrite to the pro forma. Always underwrite to the trailing 12 months of actual operations. Then build your own pro forma based on what you'd do differently. Compare the gap between current and yours. That's your value-add. If the gap requires perfect execution to make the deal work, the deal doesn't work.
Trap 2: Deferred maintenance
A property with 8 percent cap rate that needs $80,000 of capital expenses in year one isn't actually an 8 cap. It's a much lower cap once the real cost basis includes the capital work.
Walk every unit. Look at the roof. Look at the boiler or HVAC. Look at the parking lot. Look at the electrical panel. Look at the foundation. Get a real inspection and a real estimate. Add the capital expenses to your purchase price when you calculate cap rate and cash-on-cash.
The properties that look like screaming deals on paper almost always have something hidden in the capital expense line.
Trap 3: The strong cap rate with the weak rent roll
A property can show a strong cap rate today because rents are at market and expenses are tight, but if half the leases roll in the next six months and the tenants are at-will or non-paying, the cap rate is going to evaporate the day you close.
Read every lease. Check tenant payment history. Look at the security deposit ledger. A 10 percent cap rate on a tenant base that's about to turn over is not a 10 percent cap. It's a project waiting to absorb your reserves.
The strongest deals have a stable rent roll, on-time payment history, and a clear path to either lease renewal or unit improvement.
The spreadsheet structure I actually use
I'm not a fan of complicated spreadsheets. The one I use has three sheets.
Sheet 1: Property summary. Address, asking price, unit count, year built, market, agent contact, my offer position.
Sheet 2: Income and expenses. Two columns side by side. Left column is the seller's trailing 12 months. Right column is my underwritten projection (with my assumptions on vacancy, expenses, and rent growth). The gap between the two columns is the value-add narrative.
Sheet 3: Returns. NOI, cash flow, cash-on-cash, cap rate, and the same numbers for the value-add scenario. A row at the bottom shows the gap to my buy box.
That's it. Three sheets. No DCF, no IRR, no Monte Carlo. The deals that survive that simple screen are the ones worth taking to a full underwriting with inspection, lease review, and capital expense modeling.
What this doesn't work for
This framework is built for small multi-family. 2 to 30 units. Owner-operator scale.
If you're underwriting institutional-grade multi-family (100+ units, syndication structure, equity waterfalls), you need a fuller model with internal rate of return, equity multiple, and sensitivity analysis. The eight-number framework gives you the right answer at the small scale where most investors actually operate, but the institutional world requires more.
It also doesn't substitute for boots-on-the-ground due diligence. You still need the inspection. You still need to walk every unit. You still need to read every lease. The framework tells you which deals are worth that work, and once a deal clears the screen, the real estate due diligence playbook covers everything you verify before you close. It doesn't replace the work itself.
The question worth asking
Most investors I see fail at multi-family don't fail because their spreadsheet was wrong. They fail because they trusted the seller's numbers, missed the deferred maintenance, or bought into a strong cap rate without checking the rent roll.
The numbers are the easy part once you have a template you trust. The discipline of underwriting to the trailing 12 months, walking the property, and reading every lease before you sign the contract is the hard part.
If you can do those three things consistently, the eight-number framework will get you to a yes or a no in under 20 minutes per deal. Which means you can underwrite ten deals a week without losing your weekends.
That's enough volume to find the one deal in fifty that's actually worth doing.
