How to Figure Out a Fair Offer for a Multi Family Property
When you’re looking at a duplex, triplex, or any multi family, it’s not just about what it looks like it’s about the money it makes and the money it costs. Here’s how to figure it out, step by step. Step 1: Find Out How Much Money It Makes (Gross Rental Income) Add up how much rent all the units bring in each month. Multiply by 12 to get yearly income. > Example: 2 units rent for $1,000 each → $2,000/month → $24,000/year Step 2: Subtract Expenses to See What You Actually Keep (Net Operating Income) Expenses include: Property taxes Insurance Repairs and maintenance Utilities (if the owner pays) Property management (if you hire someone) \text{NOI} = \text{Gross Income} \text{Expenses} > Example: $24,000 income $8,000 expenses = $16,000 NOI This is the real profit the property makes every year before your own money goal. Step 3: Figure Out What the Property Is Worth (Use a Cap Rate) Cap rate is a number investors use to compare properties in the area. Formula: \text{Value} = \frac{\text{NOI}}{\text{Cap Rate}} > This tells you what someone would pay for this property based on the money it makes, not just the rehab cost. Step 4: Subtract Repair Costs Check for things that need fixing: roof, plumbing, paint, HVAC, etc. Add up the cost to make it livable. > Example: Repairs = $20,000 → $200,000 $20,000 = $180,000 Step 5: Decide Your Profit If you want to make $20,000 as your profit when wholesaling, subtract that too: > $180,000 minus $20,000 = $160,000 Maximum Offer You Should Make If the seller will take $160,000 or less, it’s a good deal.