Multifamily
Underwriting a Multifamily Deal
Turnover is the line most apartment pro formas understate, and blending restricted units into the market ones overstates both the income and the churn.
Open this deal in the model. It loads with the rent roll, the allowances, the capital plan and the loan already filled in. Change any number and the whole model re-runs as you type.
Open the multifamily template →An apartment block is not one income stream with an average rent. It is four or five unit types that grow at different rates, turn over at different rates and carry different restrictions. A market two-bed might grow 3.5% and turn over half its residents every year. A restricted one-bed might grow 1.5% and turn over 18%. Average them and you have a building that exists nowhere.
What a turn actually costs
Not the paint and carpet. Three things, every time: the make-ready cost, the leasing or locator fee, and the days the unit sits empty earning nothing. At 21 days on a $1,600 unit that vacancy alone is roughly $110 before you have bought a tin of paint. Multiply by the number of units turning each year and turnover stops being a rounding error.
Expenses run per unit, not per foot
Taxes, insurance, owner-paid utilities, repairs, payroll, admin and reserves are all quoted and budgeted per unit per year. Management is a percentage of effective gross income. That is how an apartment P&L is kept, and it is how the model asks for it, so the numbers you type are the numbers off the operating statement rather than a conversion you did in your head.
Renovation, at the pace you can actually do it
A renovation program is not an instant lift. Units come out of service at whatever pace your crew works, they are down for a month or two, they come back at a higher rent, and the cost lands in the year you spend it. Model the pace and the downtime and the lift arrives on a curve, which is what it does in reality.
Where the debt sits
Agency debt on multifamily typically wants 1.20 to 1.25 times coverage and sizes against value, income and a debt yield floor all at once. The model runs all three and lends the smallest, and tells you which one bound, because that is the one worth negotiating.
What the template loads with
| Property | 24 units, 22,800 SF |
| Purchase price | $3,950,000 · $164,583 per unit |
| Unit mix | 8 studio/1-bed market, 9 two-bed market |
| 4 one-bed restricted, 3 two-bed restricted | |
| Rents | $950 to $1,600 a month |
| Growth | 3.5% market, 1.5% restricted |
| Turnover | 50-55% market, 18-20% restricted |
| Turn cost | $1,400 make-ready, $400 leasing fee, 21 days vacant |
| Operating expenses | $4,730 per unit per year plus 4% management |
| Debt | Sized on all three lender tests, 6.10% fixed, 30-year amortization |
| Entry cap | 5.99% · exit 5.75% |
| Levered IRR | 9.8% over a 7-year hold |
Nothing is stored anywhere. One subscription covers unlimited use; your account keeps your deals. Press Save link and the whole set of assumptions travels in the address bar, so you can paste it into your deal notes or send it to a partner.
Open the multifamily template →Related notes and models
- Turnover Is the Line Multifamily Pro Formas Understate , the days, the fee and the labor
- DSCR, LTV and Debt Yield: Which One Actually Binds , the three tests a lender runs
- Interest-Only: What It Flatters , and what it does not
- Mixed use template , apartments above, shops below