That’s how you force appreciation and build equity, regardless of what the broader market is doing.

Is the submarket growing or declining?

You can buy a great property in a declining area and still lose money. Economic fundamentals matter. Look at job growth, population trends, crime stats, infrastructure investment, school ratings. Look for anything that signals upward or downward momentum.

Follow the path of progress. Invest where the tide is rising, and you’ll often ride it to greater returns.

Can I increase rents or reduce expenses?

Compare current rents to market comps. If your property is significantly under market, that’s opportunity. But make sure it’s feasible. You can’t just raise rents overnight. Consider the condition of the units, the quality of the tenant base, and how competitive the property is in its class.

Also evaluate expenses. Are property taxes inflated? Is the owner self-managing but inefficient? Are utility bills abnormally high due to outdated systems? Every dollar saved on expenses increases your NOI which increases your valuation.

Are tenants stable and paying?

Stability is key. Review the rent roll and collections history. Are tenants current? Are they month-to-month or on long-term leases? Is there a history of evictions?

Dig into tenant demographics. Are these long-term residents or transient renters? Are there businesses or major employers nearby that support your resident base?

Stable tenants create predictable cash flow. Problem tenants create headaches and turnover costs.

How does this asset compare to others nearby?

Benchmark the property against its competition. Visit other assets in the area. Talk to other owners or managers. You want to understand where your building fits in the local market. Is it a hidden gem or an under performer? Is it in line with expectations, or will it require heavy repositioning?

If the rents are low but the asset is superior to others nearby, that’s a powerful value-add story. But if it’s already maxed out with little room to improve, tread carefully — unless you’re banking on appreciation or long-term hold benefits.

A pro tip: don’t evaluate the deal in isolation. Evaluate the market conditions, the operator, and the timing alongside it. Real estate is hyper-local, and context matters. And remember, multifamily investing is a long term play.

The Metrics Every Multifamily Investor Should Master

If you want to make intelligent decisions, you need to speak the language of numbers fluently. These metrics are non-negotiable:

• NOI (Net Operating Income): Represents the income left after operating expenses. Critical for calculating value.

• Cash-on-Cash Return: Measures the annual return on the actual capital you invest.

• DSCR (Debt Service Coverage Ratio): Tells lenders whether the property generates enough income to cover its debt obligations — and tells you how stable the deal is under pressure.

These aren’t just formulas. They’re the tools that give you clarity, confidence, and control.

What’s Considered a “Good” Cap Rate?

It depends on location, asset class, and risk profile.

A 4.5% cap might be strong in the local market of San Francisco, while 7% might be standard in the Midwest. Your goal is to compare apples to apples — what’s the prevailing cap rate for similar properties in the same submarket?

Smart investors don’t just look for high caps. They search for undervalued properties. These properties often have issues like poor management or maintenance. This creates opportunities to increase the NOI and lower the cap rate.

That’s how you force appreciation and build equity.

Click here to learn more about what’s a good cap rate for multifamily.

How to Calculate Net Operating Income (NOI)

This one’s straightforward — but don’t gloss over it.

NOI = Gross Income – Operating Expenses

Exclude debt service. NOI reflects the property’s performance before financing. Be thorough: include all sources of income like rents, laundry, parking, and pet fees. Also, list every recurring expense such as taxes, insurance, management, repairs, and utilities.

NOI is the engine of valuation in multifamily. Underestimate it, and your offer will be dead on arrival. Overestimate it, and you’ll inherit a headache.

Understanding Cash-on-Cash Return

Investors want to know how hard their money is working.

Cash-on-Cash Return = Annual Pre-Tax Cash Flow ÷ Total Cash Invested

Let’s say you invest $150,000 and receive $12,000 annually. That’s an 8% CoC return. It’s a simple but powerful way to communicate performance — especially when presenting deals to passive investors in a syndication.

And remember, realistic projections build trust. Inflated promises break it.

Physical vs. Economic Occupancy

Here’s where rookie investors get tripped up.

Physical occupancy is how many units are occupied.

Economic occupancy shows how many units are actually generating revenue.

A building can be 96% full but still lose money. This can happen if half the tenants don’t pay or have discounts. You need to reconcile both metrics and ask why the gap exists.

Is it poor collections? Below-market rents? Deferred maintenance? Get answers — or walk away.

How to Underwrite a Deal Like a Professional

Underwriting isn’t just math. It’s modeling the story of the property under different conditions.

Start with:

• Current rent roll

• T-12 financials

• Market comparables

• Loan terms

• Your business plan

Then, forecast what the asset looks like over 3, 5, or 7 years. Model different scenarios like conservative, base case, and aggressive. What if occupancy dips? What if your renovation costs run over?

Your underwriting should reflect reality, not fantasy. That’s how you protect capital and inspire confidence from investors.

Check out this podcast on ‘The art and science of multifamily underwriting.’

Due Diligence: Trust the Process, Then Verify Everything

Due diligence is where you protect your downside.

You’re verifying everything the seller claimed — and discovering what they didn’t.

This includes:

• Auditing financials and rent rolls

• Reviewing leases and legal documents

• Inspecting every unit and every system (roof, HVAC, plumbing, electrical)

• Talking to tenants and onsite staff

• Walking the property, both during the day and night

Don’t just rely on paper. Get boots on the ground. The best investors trust their intuition as much as the inspection report.

Multifamily is a business of nuance and discipline. Deals don’t live in spreadsheets — they live in real life. But the more deals you analyze, the sharper your instincts become. The more you practice underwriting, the more you’ll spot opportunity — and risk — with precision.

Success favors speed, but it rewards preparation.

So get in the game. Run the numbers. Ask questions. Build relationships. And keep sharpening your blade.

You’re just one deal away.