Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Calculating Real Cash Flow For Multifamily Properties

Written by Paul Esajian

How can real estate investors accurately determine the real cash flow from multifamily investment properties?

The multifamily real estate investing sector has become incredibly popular again during the last couple of years. Now that prices are rising and commercial lenders are becoming aggressive about their loan practices, investors are finding multifamily properties even more attractive. The potential for real cash flow is serving as a nice incentive to add a rental property to their portfolio.

However, many real estate investors are finding it incredibly difficult to calculate their incomes and returns from these properties. This can lead to all types of issues, even if they make it through the lending process and secure a mortgage loan.

With the recent turmoil witnessed in several markets, foreclosures resulting in lost records and many distressed owners desperate to sell; it is no wonder that it can be anything but straightforward to pin point all the figures of real cash flow. So how can investors get this information and ensure they are making smart and profitable investment moves?

Obviously, some of the numbers will change after acquisition and some will depend on what new owners do with it. Before you invest, make sure you know what you are getting into.

Most multifamily mortgage lenders choose to use tax returns to verify the numbers on these properties. Subsequently, they verify those tax returns are legitimate with the IRS. This can be a smart move, but not all sellers will have access to recent years of data or have filed tax returns.

Obtaining information from a third party property management firm can be a little more reliable than figures provided directly by the seller, but make sure the two are not connected.

When it comes to making sure rental information is accurate, your title company or real estate attorney ought to send out estoppel letters to tenants to confirm the amounts. Still, these documents are often easy to tamper with. When possible and feasible, it can be wise to communicate with tenants directly to verify rent rates, due dates, presence or absence of leases, current status and deposit amounts.

For expenses, look to public property records, request copies of actual utility bills, contact utility companies directly and get quotes from new service providers for items like insurance. Once figures are accurate, the acquisition of a rental property can generate long term wealth.