Multifamily Analysis Calculator Formula
Understand the math behind the multifamily analysis calculator. Each variable explained with a worked example.
Formulas Used
Annual Cash Flow
annual_cash_flow = noi - annual_debtCap Rate
cap_rate = purchase_price > 0 ? noi / purchase_price * 100 : 0Cash-on-Cash Return
cash_on_cash = down_payment > 0 ? (noi - annual_debt) / down_payment * 100 : 0Debt Service Coverage Ratio
dscr = annual_debt > 0 ? noi / annual_debt : 0Net Operating Income
net_operating_income = noiPrice Per Unit
price_per_unit = purchase_price / num_unitsOperating Expense Ratio
expense_ratio = egi > 0 ? annual_operating_expenses / egi * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
num_units | Number of Units | 8 |
avg_rent_per_unit | Average Monthly Rent Per Unit(USD) | 1200 |
other_income_monthly | Other Monthly Income (laundry, parking)(USD) | 400 |
vacancy_rate | Vacancy Rate(%) | 8 |
annual_operating_expenses | Annual Operating Expenses(USD) | 48000 |
purchase_price | Purchase Price(USD) | 800000 |
down_payment_pct | Down Payment(%) | 25 |
interest_rate | Loan Interest Rate(%) | 7 |
loan_term_years | Loan Term(years) | 30 |
gross_potential_rent | Derived value= num_units * avg_rent_per_unit * 12 | calculated |
other_annual | Derived value= other_income_monthly * 12 | calculated |
gpi | Derived value= gross_potential_rent + other_annual | calculated |
vacancy_loss | Derived value= gross_potential_rent * vacancy_rate / 100 | calculated |
egi | Derived value= gpi - vacancy_loss | calculated |
noi | Derived value= egi - annual_operating_expenses | calculated |
down_payment | Derived value= purchase_price * down_payment_pct / 100 | calculated |
loan_amount | Derived value= purchase_price - down_payment | calculated |
r | Derived value= interest_rate / 100 / 12 | calculated |
n_months | Derived value= loan_term_years * 12 | calculated |
monthly_debt | Derived value= r > 0 ? loan_amount * r * pow(1 + r, n_months) / (pow(1 + r, n_months) - 1) : loan_amount / n_months | calculated |
annual_debt | Derived value= monthly_debt * 12 | calculated |
How It Works
Multifamily Property Analysis
Multifamily investing requires evaluating income, expenses, and financing to determine whether a property meets your return requirements.
Income Analysis
Key Metrics
Expense Guidelines
Worked Example
8-unit building at $800,000, 25% down, 7% rate, 30yr. Average rent $1,200/unit, $400/mo other income, 8% vacancy, $48,000 annual expenses.
- 01Gross potential rent: 8 x $1,200 x 12 = $115,200
- 02Other income: $400 x 12 = $4,800
- 03GPI: $115,200 + $4,800 = $120,000
- 04Vacancy loss: $115,200 x 8% = $9,216
- 05EGI: $120,000 - $9,216 = $110,784
- 06NOI: $110,784 - $48,000 = $62,784
- 07Down payment: $800,000 x 25% = $200,000
- 08Loan: $600,000 at 7% for 30yr = $3,992.09/mo = $47,905/yr
- 09Cash flow: $62,784 - $47,905 = $14,879
- 10Cap rate: $62,784 / $800,000 = 7.85%
- 11Cash-on-cash: $14,879 / $200,000 = 7.4%
- 12DSCR: $62,784 / $47,905 = 1.31
Frequently Asked Questions
What DSCR do lenders require for multifamily?
Most multifamily lenders require a minimum DSCR of 1.20 to 1.30, meaning NOI must exceed debt service by 20-30%. Some bridge lenders accept 1.10-1.15 for value-add properties. Higher DSCR means lower risk and often better loan terms.
What is a good cap rate for multifamily?
Cap rates vary by market and property class. Class A urban: 4-5%. Class B suburban: 5-7%. Class C: 7-10%. Lower cap rates indicate lower risk and higher property values. Always compare to local market norms rather than national averages.
How do I estimate operating expenses?
Use 40-50% of EGI as a rough estimate if you lack detailed data. For more accuracy, get actual trailing 12-month financials from the seller. Key categories: management (8-10% of EGI), maintenance ($500-$1,000/unit/year), insurance, taxes, and capital reserves.
Ready to run the numbers?
Open Multifamily Analysis Calculator