Analyzing Multi-family Real Estate Investments

Posted by on Friday, June 6th, 2014 at 11:20am.

RE/MAX of Boulder radio hosted Kyle Malnati of Madison & Co. Properties in Denver to help investment buyers understand how to analyze real estate investments.

Real estate offers a tangible asset that an investor can put equity into says Malnati; a reason he says drives a lot of people to invest in property over more volatile options. With so many factors, it’s hard to know where to start when analyzing which property would best suit each investor.

“The first thing you have to do is determine your source of down payment,” says Malnati. The level of comfort a potential investor has in getting a loan will determine the amount a down payment must be.

When purchasing investment property, “the most important thing is understanding your location,” he says, who advises investors to pick a location in which  they would feel comfortable living. There is potential for higher returns in potentially risky areas, he adds, and potential for better appreciation in lower-risk areas. Also consider the number of units. Properties zoned for apartment buildings are typically not in locations also zoned for single family homes, duplexes, or townhomes. Consider the convenience to your investment property from your personal residence, says Malnati. Easy access will allow a landlord to check in on the property frequently.

Before listing a property, Malnati asks the seller for a rental roster—information on current tenants, rent rates, lease expiration dates, security deposits, and income and expense statements. He provides this information to serious buyers to help them analyze their investment—an advantage to working with a real estate agent who specializes in multifamily investment properties. This information helps potential buyers calculate their Net Operation Income (NOI). NOI is calculated by taking all income generated via rent, onsite laundry facilities, parking income, and miscellaneous fees, etc. and subtracting operating expenses. Operating expenses include any expenses excluding loan payments (management fees, property tax, utilities, repair and maintenance, insurance, etc.). The amount of cash flow will be determined by a property’s NOI.

Finally, Malnati stresses the importance of working with an experienced CPA who has a higher level of expertise than an accountant who handles individual tax filings. An investor’s CPA must have extensive knowledge of how taxes are affected after an investment property is purchased, has worked with landlords before, and can help an investor create income-expense reports.

Listen to the full interview below and visit The Boulder Source for stories on everything we love about Boulder. 


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