In this video you will learn how to prospect multifamily properties and undergo a full investment analysis.
Research and underwrite properties in minutes!
Setup
Depending on the type of asset class you picked, the quick proforma will automatically choose the corresponding asset type.
Next you will choose the analysis type, acquisition or development.
Select Analysis Date Type and relevant dates:
- Analysis Dates: Select our preset 5/6 year or 10/11 year hold analysis dates.
- Actual: Choose this option if you want to enter specific start and end dates.
- Relative: Choose this option if you want a specific start date and the analysis period in months.
Assumptions
Exit Capitilization Rate Type: Choose the cashflows to include in your exit capitalization. If the capitalization rate type is set to Net Operating Income (NOI), NOI will be utilized to assemble the cash flows to capitalize for calculating the sale price.
Net Operating Income = (Gross Operating Income + Other Income) - Operating Expenses.
Net Operating Income Less Capital Costs: NOI - Also know as the economic cap rate, deducts the capital cost associated with the property. Some examples of captital costs are leasing commissions, capital expenditures, and tenant improvements.
Net Operating Income to Stabilized Occupancy: If you purchased the property with a 70% occupancy and assume an 85% stabilized occupancy at the end of your analysis period. The exit cap rate will be calculated using the NOI that is calculated at an 85% occupancy.
Exit Capitilization Rate: The rate of return to capitalize the cashflows included in calculating the sale of the property. It is used to estimate the resale value at the end of analysis period.
Example: With $100,000 in net operating income capitalized at a 10% capitalization rate, the sale price will be $1,000,000.
Present Value Discount Rate: Enter the rate of return that is expected on an annual basis to discount all future cash flows and sale proceeds by to calculate the present value.
Example: If you buy a property today with the hope to sell it for $110K in one year from today, and you require a rate of return (present value discount rate) of 10%, you could pay up to $100K for it today and obtain the 10% return one year from the purchase.
Exit Sales Commission / Closing Fees: The percentage fee of the sale price that will be paid to a 3rd Party on selling the property.
Stabilized Occupancy: The percentage of units in a rental property that are occupied. Occupancy rate is the opposite of vacancy rate. The stabilized occupancy is used to reflect the standard market conditions for your analysis.
Example: If your property has a 75% occupancy but the median market occupancy is 70%, you would input 70% to ensure there is a contingency line item calculated in your cash flow projections with the normal market conditions.
Credit Loss Rate: The percentage of the forecasted rent revenue that would be uncollected due to lack of payment, late payment or rent reductions. The national average for credit loss rates in multifamily properties is under 1%.
Inflation
Inflation is the rising cost of goods and services. It is important to include inflation when underwriting a multifamily property because it has the potential to impact your returns drastically. Usually interest rates will rise with inflation, this causes less people to buy homes and the demand for rentals increases, resulting in higher rent increases. But sometimes inflation will cause wages to increase, the operating cost of your property will increase as well.
In Rockval, you have the ability to underwrite inflation for a multitude of items. To keep it simple, enter in a “General” inflation number and click the “Apply to Forward Category” button. This will maintain a constant inflation throughout the investment period.
Revenue / Expense / CapEx
Revenue: This is where you will enter any miscellaneous revenue that the property generates.
Examples: Billboard, Pet Rent, Storage, Parking.
Expenses: Operating expenses include all of the costs associated with operating the property. These include property management fees, insurance, utilities, property taxes, repairs, and maintenance.
CapEx: Also know as Capital Expenditures are costs used to renovate, maintain, or invest the property outside of the normal expenses.
Example: New roof, parking lot, tenant technology, unit renovations.
Per Type
Changing the Per Type amount will allow you to change how you compute expenses, revenue, and capital expenditures.
Net SF - The amount of rentable or usable area on a property or space.
Amount - Enter the actual amount of the line item.
Unit - Computes the amount on a per unit basis.
Per Time
Choose the frequency to distribute the line item, ie. if it is $100/year is that incurred in equal monthly increments or is this once a year.
Frequency
Choose the frequency to distribute the line item, i.e. if it is $100/year is that incurred in equal monthly payments increments or this is once a year.
Fixed
Enter the amount of the line item in a percentage that “does not” vary with occupancy.
Fixed Costs: Expenses that do not vary from a change in occupancy i.e. real estate taxes, insuranceVariable
Costs: Expenses that do vary based on occupancy. i.e. utilities, management fee, maintenance
Calculation Example:
- Utilities $100/mo
- Utilities Variance: 50%
- Occupancy 80%
- Variable Utilities Cost = (variable utilities amount x occupancy rate) $50 x .80 = $40
Utilities = (fixed utilities cost + variable utilities cost) $50 + $40 = $90
Spec Schedule
Use the spec schedule to schedule when a line items will be reflected on the operating statement or leasing/capital costs. i.e. Plan to have the roof replaced year two of the analysis.
Rent Roll
Current Leasing - Enter the current rent roll for your property. If you want rent to increase year over year, enter a Annual Market Rent Increase.
You can Auto Import your rent roll from a PDF, Excel file, or .CSV. Click here to watch the tutorial video.
Use the renovation leasing tab to manage unit renovations. To schedule units for renovation use the renovation schedule. Then enter the duration of the renovation, cost, and new rental rate.
A rent premium is the additional rent for multifamily properties. Some examples include storage facility, parking spaces, valet trash, or balconies.
Rent Roll Auto Import
This is one of Rockval’s premium features. You have the ability to automatically drop in rent rolls from PDF, XLSX/XLS, or CSV files.
Lease Up Schedule
For this section you will map out lease ups and moveouts throughout the analysis period.
Lease Up is where you will put the amount of units leased in a given month. The max you can lease up is the amount of vacant units.
Moveout schedule is where tenants are moving out that did not resign a lease. It is common practice to assume 1-3 months after moveout the space would be leased again. The available units will display how many unoccupied units are available to lease.
Cost
Select how you would like to enter the purchase price for the property. Enter in an amount, direct capitalization, or percent of present value derived from the present value rate entered in the Deal Assumptions.
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