Evaluating Multifamily, most important metrics in your opinion?
What metrics do you think are most important when evaluating multifamily? (&gt;$20M)
Is it cap rate, $/SF, GRM, GSI, $/unit, building condition, or something else?

For example if you have a building where rents are under market but the building is in good shape + better location + larger SF than most comps what do you do? How do you weigh different metrics?

Is it reasonable to have a lower than average cap rate (let’s say 3.5%), if the $/SF and $/unit is still well under average (-20%)?


Thanks for any input!
[{"id": "hyu93hj", "text": "You really need to develop a Discounted Cash Flow. If you don't know how to do that I can point you in the right direction. Let me know if you would like some help.", "replies": [{"id": "hyulrpf", "text": "I've been looking for some good models.", "replies": [], "depth": 2}, {"id": "hyuuhcm", "text": "This is the right answer. COC is fine, cap rate helps, but truly you need to account for the time value of money as well as future cash flow projections.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hyub40w", "text": "All those metrics matter, if you only focus on one metric then you run into trouble. A run down building with a 6% cap rate might be a far worse deal than a new construction property at a 4% cap rate. It also depends, is this for you or is it a client? If it's a client, then you need to determine what they look at. Some like value add deals, some like low maintenance properties.  \n\n\nThat being said, for myself, I like to look at price per rentable SF and take a quick glance at the current condition/age, and decide if it's worth evaluating in more detail based on those two factors. After that, I'll determine what I think the market cap is, what it will cost to get there, and compare that against comparable sales in the area.", "replies": [], "depth": 1}, {"id": "hyueb1y", "text": "All of the above. Remember cap rate is meant to be used on a stabilized NOI. So if you have below market rents or vacancy or some sort of value add that you'll be working on, you can use yield on total cost for your going in KPI. Price per unit, IRR, Equity Multiple and average CoC are also metics that MF investors use to evaluate deals.", "replies": [], "depth": 1}, {"id": "hyug56g", "text": "Yield on cost and cash on cash returns are king", "replies": [{"id": "hyum5wl", "text": "Are people still buying 2caps with negative leverage in CA? Only way to cash flow is 100% cash\u2026", "replies": [{"id": "hyv4ade", "text": "I\u2019ve seen some 2 caps in beach communities but that\u2019s about it. 3s are extremely common in todays market though.", "replies": [], "depth": 3}, {"id": "hyv5poa", "text": "Yes because they have upside on rents. They are playing the or forma game.", "replies": [{"id": "hywr5hr", "text": "For sure. Rent control units that eventually potentially can go to market. But my point is just that some people buy without worrying about CoC.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hyuk5kz", "text": "Big three performance metrics I revert to are: IRR (money weighted measure of return), Profit (undiscounted cash in less cash out) and Multiple of Capital. \n\nBut, investment analysis is more about assessing likely returns and probable risk. So, it\u2019s more about the interplay of assumptions made that justify a particular return and whether those assumptions are justifiable and defensible. IMHO", "replies": [], "depth": 1}, {"id": "hz3cl6x", "text": "Return metrics are the Most Important things for every Investor, it may vary some Invests for cash flow, some Invests for Future appreciation based on their situation. most of the times cap rates Don't tell you the full story, in my opinion, Price/unit, Price/Sq.ft, GRM just the Plugin numbers for your analysis.\n\n&amp;#x200B;\n\nThe bottom line is you have to look at your COC, IRR, EM. weighing heavily towards what return metric matters the most for you.", "replies": [], "depth": 1}]