| by Kenneth Chase | 69 comments

How to Analyze a Multi-Family Rental Property | Deal of the Day | Lewiston, Maine


Hey, Everyone, I’m Dave Meyer with BiggerPockets.com and today we are analyzing a 4 unit multi-family to see if it makes a good investment on this episode of Deal of the Day. Thank you, everyone for joining us. Today’s Deal of the Day was submitted by BiggerPockets user Al Smith, who lives in Indianapolis, but is looking at a deal in Lewiston, Maine. Before we jump into the numbers and the specifics, how to analyze this, I’m going to talk a little bit just about the details of the house that Al gave us and some of the questions he asked us specifically to address. So, the house was built in 1881, definitely
a house on the older side. It was converted into a fourplex at some point after its original construction, so we know it wasn’t designed this way, but that’s not
necessarily a bad thing. It’s listed at $110,000 and has an estimated monthly rental income of $2,250 per month. Taxes are only $2300/year for 2017. So, I’m already liking the numbers on this
deal before we really get into any of the details The location is in an older part of town which isn’t really a bad thing, but something to think about. And as for Al, our BiggerPockets member, he’s a first time investor. He has $40,000 saved up, so great job Al,
but he prefers not to put that $40,000 all towards the down payment and is looking to use a conventional 30 year loan with 20% down… which definitely would be possible with
these numbers… (Volume Up)

69 Comments

mvpwade

Apr 4, 2017, 10:58 pm Reply

Decent cashflow considering the low amount of downpayment required. Just be very careful with capital expenditure because it looks like an older building that may come up with "surprises" down the road.

Bashar Yassin

Apr 4, 2017, 2:53 am Reply

u

Shanghai Bnb

Apr 4, 2017, 10:30 am Reply

Lewiston Maine is a DUMP. Tons of drugs, massive decline in the local industry. You will for sure have to deal with some big time losers not paying rent. Be prepared.

deckerjake438

Apr 4, 2017, 2:18 pm Reply

Thank you for the great casestudy

Tony Georgiev

Apr 4, 2017, 5:59 pm Reply

Why include expenses that are paid by tenants?

goofybuilder

Apr 4, 2017, 9:47 pm Reply

I understand you are selling your calculator, which i happen to think is good, but you are doing the investor an injustice by not allowing for repairs right away. just by looking at the video i can tell you that the railings on the exterior of the house do not meet building codes. that would be the first thing i wood fix for liability reasons and an allowance should be made for repairs right away. I recommend that people do their due diligence and allow for repairs, otherwise you may not make the money you think you will. the major thing when you own rental property is to make sure the place is up to code.

naya50

Apr 4, 2017, 11:44 pm Reply

this is a perfect example. it helps me to analyze a similar deal. Thanks

joe lowery

Apr 4, 2017, 6:28 pm Reply

LOCATION is EVERYTHING in REAL ESTATE!  I inherited 47 rental units from a deceased great uncle in Lewiston in the early 2000's and it was nothing but trouble.  This old river town once had booming Lumber mills but now sadly has next to nothing going for it which sadly makes it a town where people have nothing to lose….but INVESTORS have tons to lose.  I was ripped off by property managers, tenants trashed apartments, never ending repairs, constant legal battles in court and it took me 13 years to sell off all my units just to get some money out. 13 YEARS!  There is far more to a good deal than the numbers alone.  Never forget location, location, location.  A great deal in a terrible area isn't a great deal as I learned the hard way.

Tyler Tracey

Apr 4, 2017, 10:36 pm Reply

Two things. Maine banks consider four units commercial properties and you didn't include heating expenses which would run about 600 a month in a four unit in Maine.

Joseph Williams

Apr 4, 2017, 1:20 pm Reply

Tried to use the code multiple times within 72 hours of this video and it is not active? What gives?

Lindsay Ashton

Apr 4, 2017, 3:04 pm Reply

Video, thanks! I wonder if BP would ever consider doing a series where a local investor will analyze a deal in their state(s)? I would love to learn more about my local deals to analyze as each state can be very different in taxes, rents, utilities, etc.

17th Luv

Apr 4, 2017, 1:12 pm Reply

Why Its not calculating my assessment? I purchased the plus.

Libertarian

Apr 4, 2017, 11:47 pm Reply

Fuck real estate investing

MALI FIT

Apr 4, 2017, 2:15 pm Reply

It would be cool if there were several practice cases where we could try it out ourselves then verify with the example with answers.

Music Man

May 5, 2017, 10:28 pm Reply

Can't wait to start investing!

rulestein

May 5, 2017, 1:45 pm Reply

Al asked about estimating expenses. When you finally get to that part, you just said you did some research. The answer is to ask the seller for their records, PandL, utility bills, and hopefuly their schedule E.

Daniels

Aug 8, 2017, 6:42 am Reply

?

Katie Stucker

Sep 9, 2017, 5:08 pm Reply

Since there is no slot for heating. Could I simply add that amount to the electricity to have a more accurate number or no?

Chris Baker

Oct 10, 2017, 9:10 am Reply

Thats a good deal.

Sergei Hakobian

Nov 11, 2017, 6:29 pm Reply

Are you sure electricity bill is part of the landlord's one of the fixed expenses? In California, renter pays for gas and electricity, and the owner pays for the water and the sewege.

Nancy Sears

Dec 12, 2017, 7:56 pm Reply

Can you please explain the vacancy portion of the calculations?

Coolkid Mouth

Dec 12, 2017, 12:05 am Reply

Maine is not a good state to buy property

Michel Mahler

Jan 1, 2018, 2:19 pm Reply

Sorry to get off topic but what in the world is going on with all those high wires. See 0:44 lol. Rediculous!

KidCity Lynnwood

Feb 2, 2018, 1:49 am Reply

GREAT video, this should be a high school class.

Dan Johnson

Feb 2, 2018, 4:36 am Reply

Since when did points charged by lenders have anything to do with your down payment? You can buy down your interest rate by paying points or you can raise your rate by getting $ back at closing.

Dhynasah James

Feb 2, 2018, 5:12 am Reply

If you have the money to pay up front would you still recommend getting a loan for first time buyers? Which is the better option?

illmatic_ 07

Feb 2, 2018, 1:14 pm Reply

Awesome info!

Clan Dragonas

Feb 2, 2018, 3:04 pm Reply

This guy is a way better teacher than the other BP bloggers. He can actually focus, speak, and articulate!

Bruce Wannng

Apr 4, 2018, 8:17 pm Reply

Great insight!

Mary Lemke

Apr 4, 2018, 5:16 pm Reply

Great calculator. Do you have resources for the Canadian market?

Isahq Rana

May 5, 2018, 5:31 pm Reply

Great Video! I would like to know how did this property get a Net Operating Income of $9490?

Matthew Soll

May 5, 2018, 9:27 am Reply

7k closing costs on a 110000 purchase?

Andrés Maldonado

Jun 6, 2018, 1:06 am Reply

So this is how you use people to give you data on houses deals. They enter the info, they get their analysis but so you do.

Vicky Shambo

Jun 6, 2018, 9:30 pm Reply

Taxes?

Vicky Shambo

Jun 6, 2018, 9:31 pm Reply

No taxes, this works, but with taxes, it's not a nice

Danny Kelly

Jun 6, 2018, 5:27 pm Reply

loved you advice, great investment advice

André Mariano

Jul 7, 2018, 2:39 pm Reply

those are some cheap taxes xD 28% here + real estate tax + (condominium if it's a building)

THEGAMINGHELP101

Jul 7, 2018, 12:25 am Reply

Nice calculators but if you know how to use excel you can make a calculator like this yourself. Of course it wont look so nice.

Drivin Math

Aug 8, 2018, 4:56 pm Reply

Can I get 20% off now that I've already paid up front.

Liam O’Sullivan

Sep 9, 2018, 4:50 am Reply

Excellent video thanks Dave ?

Jacob Pair

Oct 10, 2018, 12:10 pm Reply

Shouldn’t the tenants living there pay there utilities?

Milton Romero

Oct 10, 2018, 1:14 am Reply

Great video dude

frankenfaq

Oct 10, 2018, 3:02 pm Reply

Idk how it figured out 15% with cash on cash.. I mean you take your noi over your total investment. I got a different number

Multi Family Real Estate

Oct 10, 2018, 1:04 pm Reply

Yet, NEVER type the actual address in to the calculator. www.MultiFamilyRealEstate.com

Dreamingrightnow

Nov 11, 2018, 11:30 pm Reply

6:24 Are you defining Cap rate or Gross Rent Multiplier? I thought GRM was how many years to pay off total investment based on rent income… Confused already, lol.

Dreamingrightnow

Nov 11, 2018, 11:37 pm Reply

What are Capital Expenditures?

Lucas Asselmeier

Nov 11, 2018, 2:55 am Reply

50% rule can be really misleading understanding real expenses is more realistic when possible. He should speak with agents and property management companies in the area hes looking to buy in

milo74156

Dec 12, 2018, 1:12 pm Reply

You guys are great

milo74156

Dec 12, 2018, 1:25 pm Reply

Why wouldn't you add some repairs most properties need repairs so all that info isn't even close

Omaha Wellness

Dec 12, 2018, 1:16 pm Reply

I recommend buying an apartment building complex with 6-10 units in a low income neighborhood. Average rent should be $495, and have a property management company run it. You'll make a damn killing.

Rod Khleif

Dec 12, 2018, 10:04 am Reply

Great video! Thanks for sharing these info.

Dawn Burwell

Feb 2, 2019, 2:56 pm Reply

I don’t see a difference between Pro or Plus memberships. Will you explain please ?

Luke Bray

Mar 3, 2019, 5:04 pm Reply

Hol up. Wait a minute.
1881 ?!?!?

eblman

Mar 3, 2019, 11:14 pm Reply

I've met Dave last year in Denver. Pretty cool guy!

Dxwhy

Apr 4, 2019, 9:22 am Reply

Cap rate = how many years you will have your ROI? Not exactly. It's simply the ROI, it's net operating result of the property divided by the market property value. So in a given area you might have better returns than in other areas. Humm…

geckolord8

May 5, 2019, 9:25 pm Reply

Thats not how the 50% rule works…… It is a rule of thumb but nowhere close to accurate most of the time.

Sharon Brown

May 5, 2019, 9:11 pm Reply

How would entering the address jeopardize the deal? Are the personal Calculator reports visible to others?

Walina1001

May 5, 2019, 10:45 pm Reply

Your analysis started with a fake number, the listing price. Every number after that is thus incorrect. Also a cap rate does not measure time and is not used for any property that does not have cap rate comps. Geez, you are just pulling numbers out of your ass and expecting someone to pay for it. Good luck with that.

Top Comment

May 5, 2019, 7:39 pm Reply

Holy hell, shut up about the freaking calculator discount code ?

Jay

May 5, 2019, 5:04 pm Reply

First off, how do you live in IN and find a house in ME??? Riddle me this…seriously. If anybody can answer the different ways to find investment opportunities in other areas, I'd appreciate it very much.

Niko Sitaras

Jun 6, 2019, 2:05 pm Reply

Felt like one big advertisement ad.

The Capable Woman

Jun 6, 2019, 5:20 pm Reply

This is outstanding!  I have several properties and never considered using a tool like this. Thank you!

Cody Gordon

Jun 6, 2019, 2:51 am Reply

Some of these comments. There is no need to be rude sir.

Jacob Michal

Jul 7, 2019, 6:01 pm Reply

How is electric only 200

Just_X

Jul 7, 2019, 5:29 am Reply

Hey my name is Xavier I’m a new investor (1year) in the Kansas City market looking to find good deals on MF and SF also I would like to get to know anyone in the area that would like to hunt for deals… P.s Driving for dollars is pretty fun on a motorcycle

Henrik Johansson

Aug 8, 2019, 11:25 am Reply

@5.56 thats not true everyone would do better just paying the interest down. unless your debt levels are to high

Henrik Johansson

Aug 8, 2019, 11:29 am Reply

cap rate is not how long it takes for you to earn back the down payment it is how long it takes to earn back the full value of the house (market value)

C-Wow

Aug 8, 2019, 12:34 am Reply

speed this up to 1.5 and it is much more graham stephan and less old retired grandpa

clambert2020

Aug 8, 2019, 1:03 pm Reply

Something doesn't seem quite right. With income at $2250 and estimated expenses at $1892 the expense to income ratio is 84% with $358 cash left. But if the buyer uses the Bigger Pockets 50% ratio then he has $692 per month in cash. Yes that math is correct. However, the only way to get these expenses down to 50% is to actually reduce the amount spent on expenses or raise the rent. Many landlords who ignore the operating expense warning signs at time of purchase later try to improve cash flow by deferring maintenance. That is how you run your property into the ground and become a slum lord.
Many real estate investors use the 50% expense to income ratio as a GO-NO GO metric. Coupled with NOI and the 1% to 2% rule you can get a pretty clear picture of a good deal vs lousy.

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