How to Analyze a Multi-Family Rental Property | Deal of the Day | Lewiston, Maine

On this week's episode of Deal of the Day, we are analyzing a fourplex in Lewiston, Maine.
Using the BiggerPockets Rental Calculator we will be able to see if this property will cash flow and ultimately make a good deal for BP member, Al Smith!
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[@kidcitylynnwood6324]

GREAT video, this should be a high school class.

[@jwake4803]

KidCity Lynnwood sadly it never will be. They'll preach about Roths and 401K's though.

[@ClanDragonas]

This guy is a way better teacher than the other BP bloggers. He can actually focus, speak, and articulate!

[@Walina1001]

Great, but he is still misinforming you!

[@mattheweggimann2126]

Walina1001 explain before making accusations

[@joelowery1553]

LOCATION is EVERYTHING in REAL ESTATE! I inherited 47 rental units from a deceased great uncle in Lewiston in the early 2000's and it was nothing but trouble. This old river town once had booming Lumber mills but now sadly has next to nothing going for it which sadly makes it a town where people have nothing to lose....but INVESTORS have tons to lose. I was ripped off by property managers, tenants trashed apartments, never ending repairs, constant legal battles in court and it took me 13 years to sell off all my units just to get some money out. 13 YEARS! There is far more to a good deal than the numbers alone. Never forget location, location, location. A great deal in a terrible area isn't a great deal as I learned the hard way.

[@ethannaka1822]

Great point, the exit is more important than the buy.

[@FlipAnythingUSA]

Sounds like a nice problem to have (inheritance) I actually know exactly what and where you are talking about. I bought a duplex and a house together in Orofino ID for $55,000. There is a a lot of unemployment and drugs and drunks. Seems many work seasonally in lumber and unemployed seasonally.

[@terrymiller111]

Is that fourplex one of your old ones?

[@ItzAlwaysJade]

Since there is no slot for heating. Could I simply add that amount to the electricity to have a more accurate number or no?

[@zero2hero308]

joe lowery Would you be willing to email me at [e-mail] ?

[@thecapablewoman2881]

This is outstanding! I have several properties and never considered using a tool like this. Thank you!

[@Onecamera]

Glad to see deals being analyzed close by. Gives me hope of finding something nearby.

[@Dimrain13]

When you realize you can find the calculator for free in excel...

[@musicmini1694]

Say what now 😳?

[@lifestylesfitness9403]

He right lol

[@AlbertoLends]

Do you have the file 👀

[@coloradobrad6779]

Ikr. The entire foundation of Bigger Pockets is to buy properties only if they are 25% or more below market value. @13:13 there is no way a multi unit property in Denver is $110,000.

[@Dimrain13]

@@coloradobrad6779 Well thats not true... They arent saying only buy X only that there are deals to be had in any area... especially if you want to fix them up.

[@rulestein]

Al asked about estimating expenses. When you finally get to that part, you just said you did some research. The answer is to ask the seller for their records, PandL, utility bills, and hopefuly their schedule E.

[@ShonTolliverMusic]

This isn't a "how to analyse" it's a "how to use my calculator."

[@Walina1001]

How to BUY my calculator.

[@FinancialAdviceNetwork]

@@Walina1001 exactly

[@rachelmorrow9042]

It's also a "How to use any calculator wisely" video

[@brianmcnellis5512]

Google play's got calculator's for everything like this, CDScalculator is one of them.(not a commercial)

[@ShonTolliverMusic]

@@rachelmorrow9042 good point, especially if someone is unfamiliar with P&Ls and Financing.

[@paulkubin]

Why is the owner are you paying utilities? Don’t the renters pay for these? I’m guessing the water is not separate for each unit, so you might have to pay that, but the other utilities probably are, right?

[@zerlindaadimannuela1773]

im 19 and will be working with the government (next year and i've already been thinking about investing 80% of my monthly income (luckily my salary is pretty high and 20% to live off every month isn't that bad. I live in Jakarta btw) invest 80% of salary into real estate and hope to quit in 2 years. I have learned a lot from bigger pockets (thx a lot BP), their podcast, blogs, forums, books recommendation (Brandon turner's, Millionaire real estate investor n many others). I've been waking up everyday at 4 am studying about real estate putting at least 6 hours a day on doing numbers, creating a plan, searching for properties online, analyzing them eventho im still a student. I realize that real estate is what im truly passionate about.. and i just always feel different than most of my friends idk.. I want to retire early but i feel like if i tell that to anyone they would laugh :( Even my parents doesn't seem to support me to retire early.. Not here to brag but i think if you set ur mind to it, i think u can do anything. Wish me luck..

[@freeedy3195]

its been two years, how far have you gone?

[@lucasasselmeier7825]

50% rule can be really misleading understanding real expenses is more realistic when possible. He should speak with agents and property management companies in the area hes looking to buy in

[@henrikjohansson4426]

cap rate is not how long it takes for you to earn back the down payment it is how long it takes to earn back the full value of the house (market value)

[@Walina1001]

Cap rates do not measure time! They come from an income approach to value called direct capitalization.. Cap rates are not used to value SFR's and an investor has no need to ever calculate a cap rate.

[@henrikjohansson4426]

@@Walina1001no you use a clock to measure time. But all investment returns are based on how long someone is willing to wait for x cash flow. I think its rather stupid idea to not calculate a cash flow return of a property even if its a SFR property. but its also a lot of people that buy stocks without reading the annual reports its called gambling and it mostly ends in a bad way.

[@Walina1001]

@@henrikjohansson4426 You stated, "calculate a cash flow return of a property ". What are the calculations to do this? What even is "your" definition of "cash flow"? Direct capitalization has nothing to do with cash flow.

[@mvpwade]

Decent cashflow considering the low amount of downpayment required. Just be very careful with capital expenditure because it looks like an older building that may come up with "surprises" down the road.

[@biggerpockets]

Exactly. Dave used the 50% rule which worked out well and would cover majority of capex! Thanks for the feedback!

[@CarlHebert1967]

This is very true here in Lewiston. One of the big expenses coming up more now is lead abatement. Almost every apartment building here was built before 1970 so all of em have tons of lead paint in them.

[@dreamingrightnow1174]

​@@CarlHebert1967 Did you say Lewiston is a Trump town, lol?

[@CarlHebert1967]

@dreamingrightnow ???

[@goofybuilder]

I understand you are selling your calculator, which i happen to think is good, but you are doing the investor an injustice by not allowing for repairs right away. just by looking at the video i can tell you that the railings on the exterior of the house do not meet building codes. that would be the first thing i wood fix for liability reasons and an allowance should be made for repairs right away. I recommend that people do their due diligence and allow for repairs, otherwise you may not make the money you think you will. the major thing when you own rental property is to make sure the place is up to code.

[@biggerpockets]

Very true and great points. The calculators are a fantastic tool to help investors analyze deals. However, it is the investor's responsibility to do their full due diligence and research. The calculators are only a tool to make their calculations easier :)

[@problemsolversgetpaid9958]

you are going to find out about those things during due diligence period at that point accommodations can be made.

[@randyg6409]

Yes always have to factor a reno/repair number in there in addition to that downpayment unless the building is brand spanking new . As far as expenses there are 4 meters from looking at the picture so I would just have the tenants pay for electricity. That adjustment alone significantly improves the cashflow numbers.

[@hxvideo]

BiggerPockets how to make sure a house will be rented at all?

[@kirisutegomen12]

@@hxvideo the truth is you can't, but you need to look into rental demand in the area to mitigate risk

[@lindsayashton1385]

Video, thanks! I wonder if BP would ever consider doing a series where a local investor will analyze a deal in their state(s)? I would love to learn more about my local deals to analyze as each state can be very different in taxes, rents, utilities, etc.

[@biggerpockets]

Absolutely! We hope to reach this point soon! Thanks for the awesome suggestion :)

[@biggerpockets]

Stay tuned! We are working on this currently :)

[@lucasasselmeier7825]

Do oregon! Its near washington Brandon Turner

[@CD-ii8it]

awesome video!

[@williambackman9607]

The bigger pockets rental calculator is so good.

[@aemv12]

So this is how you use people to give you data on houses deals. They enter the info, they get their analysis but so you do.

[@fh4185]

yeah my antennas went up too on that

[@dawnburwell4876]

You don’t have to give the actual address. He didn’t.

[@iloveamerica1966]

Wow, talk about paranoid.

[@mmenchu]

Very true. But they would also be relying on a user's ability to assess expenses. Not every user can be trusted equally.

[@BruceWangOfficial]

Great insight!

[@abdinoorx2]

I recognized the house and thought it was a coincidence till I saw Maine, what are the odds 😂

[@frang8750]

Looks like the city needs to do a rewire on the power lines. Wow haven't seen anything like that before

[@naya50]

this is a perfect example. it helps me to analyze a similar deal. Thanks

[@deckerjake438]

Thank you for the great casestudy

[@biggerpockets]

Every Monday we will release a new Deal of the Day!

[@mikemoore4702]

I do not understand why the 50 percent rule doubles your income. It looks like it would cut the cash on cash return

[@danjohnson5114]

Since when did points charged by lenders have anything to do with your down payment? You can buy down your interest rate by paying points or you can raise your rate by getting $ back at closing.

[@brandongrennan7602]

Amazing content!!

[@ItzAlwaysJade]

Since there is no slot for heating. Could I simply add that amount to the electricity to have a more accurate number or no?

[@anthonycarter6112]

Can you compare this analysis in 2017 vs 2022?

[@joemclain6385]

That is a lot of power cables

[@SSunshower]

ThAnks for posting

[@budramkissoon7938]

Great information thanks

[@RodKhleif]

Great video! Thanks for sharing these info.

[@nikositaras3614]

Felt like one big advertisement ad.

[@dubbylilluda]

super sold @ 14:49

[@illmatic_07]

Awesome info!

[@dreamingrightnow1174]

6:24 Are you defining Cap rate or Gross Rent Multiplier? I thought GRM was how many years to pay off total investment based on rent income... Confused already, lol.

[@RosieOs101]

Dreamingrightnow I agree. Cap rate is the expected rate of return where GRM is the length of time expected to pay off the total investment!

[@Walina1001]

@@RosieOs101 You are wrong on both. Cap rate is used to value a property. It is an income approach to value called direct capitalization. It is not a rate of return but measures the demand for NOI in a specific market. GRM is another valuation method where if the market is paying say 10 times gross rents then if a property has say $24,000 annual gross rents then the market value should be about $240,000. Cap rate and GRM are valuation methods.

[@frankenfaq4706]

Idk how it figured out 15% with cash on cash.. I mean you take your noi over your total investment. I got a different number

[@yummy1234098]

speed this up to 1.5 and it is much more graham stephan and less old retired grandpa

[@doggydude4123]

Where i live in CA, there's a quadplex selling for 800k and the rental income is roughly around 4k a month if all 4 units get rented out.

[@cuarajhyrojayju4397]

That’s not a lot of income for every 100 thousand you should be making $1,700 , $ 13,000 per month of income

[@jacobpair3961]

Shouldn’t the tenants living there pay there utilities?

[@mattgallagher8525]

They won’t need to pay utilities for certain cercumstancesfor example the units may not have their own separate meters. It is illegal to charge utilities if each unit does not have their own meter. Or if rents are above market utilities may be included

[@jiujitsu94]

@@mattgallagher8525 Units would have separate meters. It's against state code to not have that. RU-476 section B of federal housing law.

[@brandonreynolds5825]

Jacob Pair, some states require the landlord to include some utilities. Example Illinois you would pay tenants water and garbage as a landlord.

[@mutualdecline2174]

KiLo Zulu Illinois does not require Landlords to pay for water. I know this for a fact. Real Estate giant Pangaea Rental Properties charges their tenants a faction of the water bill that they receive each month. The costs are split between all tenants within the building. Most individual Landlords do not charge for water & garbage but it is not a law for a landlord to pay for such utilities.

[@cuarajhyrojayju4397]

Can you make video on cash buyer

[@meliss9536]

Weird, Lewiston. Where I lived in my first apartment. :P

[@georgerancourt4201]

Thanks

[@pnuema1.618]

Could you guys make a video or divert me to it if you already have of all possible costs that a beginner may over look when analyzing referring to maintenance and up keep. Example of what I'm talking about is "lawn services" if its a duplex. Something I may over look do to lack of experience.

[@hyrunnisa997]

If you have the money to pay up front would you still recommend getting a loan for first time buyers? Which is the better option?

[@lucasasselmeier7825]

If you have positive cash flow in your analysis you would diversify by using loans to aquire more than one property and can higher IRR by a long shot

[@ericslingerland5472]

Its mostly a question of what you would be doing with the leftover cash if you used a loan. If you are just going to spend it then spend it on the property, if you have some other method of investing it that is likely the better choice with interest rates as low as they are. Oh, and about how long you think you could cover the loan during a vacancy period, an additional risk to consider, but likely not that big of a deal all things considered.

[@milo74156]

You guys are great

[@nancysears6030]

Can you please explain the vacancy portion of the calculations?

[@justchris2015]

if one of the flats is vacant its money which you need to pay that missing payment until you get a new tenant ( i think)

[@livelean2884]

That's right. It is money set aside for vacancy's, they will come up so it's always good to be prepared for them.

[@miltonromero5533]

Great video dude

[@sergioramos3437]

As an aspiring data analyst and real estate investor I wonder how much of an undertaking it was to create this tool

[@RosstonSmith]

Why would the owner pay electric when the property is submetered for Electric in The picture 🤦‍♂️. Looks like its submetered for plumbing as well.

[@yhunchoi1]

more like a 16 minute ad, but useful

[@brianmcnellis5512]

What to do when the wife keeps trying to kill-the-deal just because of what to us happened in "08"...

[@dawnburwell4876]

I don’t see a difference between Pro or Plus memberships. Will you explain please ?

[@ferencvad8251]

You have free real estate calculators elsewhere

[@bluecollarmoneymatters8246]

Sorry to get off topic but what in the world is going on with all those high wires. See 0:44 lol. Rediculous!

[@dreamingrightnow1174]

Michael Mahler They must not do underground cable and phone lines, lol. Scroll up for the lead abatement issues... :)

[@isahqrana6756]

Great Video! I would like to know how did this property get a Net Operating Income of $9490?

[@mobileyt1842]

What is vacancy

[@geckolord8]

Thats not how the 50% rule works...... It is a rule of thumb but nowhere close to accurate most of the time.

[@Walina1001]

IN what hell hole market does a property trade at a 4 Gross Rent Multiplier?

[@danceballetacro]

wow very helpful

[@dreamingrightnow1174]

What are Capital Expenditures?

[@keltingr]

1881 and no repairs budget lol? You forgot to add in heating costs!

[@mmenchu]

This is actually a great point. And the numbers will vary from investor to investor, depending on whether they have the capability to addressing repairs in-house or have to pay retail price.

[@abdulblessinger6659]

The calculator rocks..THANKS

[@moiadcosmin]

Hi, is possible to use this calculator for Europe ? or is just for USA ? thank you

[@blakerich5804]

he excludes to tell you the calculator isnt free lol

[@JoeWilliamsOriginal]

Tried to use the code multiple times within 72 hours of this video and it is not active? What gives?

[@biggerpockets]

Hey, Joseph! Thank you for reaching out to us on Facebook! We will make sure to update the code for both uppercase and lowercase

[@willypattade]

Excellent video thanks Dave 👍

[@georgerancourt4201]

How come McAfee sent me a warning as soon as I went to your website? not good

[@17th_Luv]

Why Its not calculating my assessment? I purchased the plus.

[@biggerpockets]

Hey, please email [e-mail] - They will assist you further!

[@17th_Luv]

ok, thanks. I'll reply whether its been resolved or not

[@mindofigor]

@@17th_Luv liar!

[@17th_Luv]

@@mindofigor lmao, I completely forgot about this. But the solution was to use windows explorer instead of Chrome. Hopefully we dont have to do that anymore

[@John-wc5kt]

Can't wait to start investing!

[@jjhorrynyc]

First off, how do you live in IN and find a house in ME??? Riddle me this...seriously. If anybody can answer the different ways to find investment opportunities in other areas, I'd appreciate it very much.

[@sharonbrown4684]

How would entering the address jeopardize the deal? Are the personal Calculator reports visible to others?

[@lathancram5184]

Sharon Brown Because people are watching this video lol

[@zibtihaj3213]

what is capital expenditure (I thought repairs and maintenance would take care of that part) ?

[@nicholasbeecher1599]

Capital expenditures are funds set aside for large maintenance items that would hopefully occur down the road such as: new roof, water heater, septic system, exterior paint, etc..

[@zibtihaj3213]

@@nicholasbeecher1599 I see - thx for that - I would have called that " reserves ". Thx again

[@Tressence_Tv]

The math does not make sense at all. NOI/initial investment 9490/29000= 32.7% And the NOI is wrong with those numbers

[@tylertracey1522]

Two things. Maine banks consider four units commercial properties and you didn't include heating expenses which would run about 600 a month in a four unit in Maine.

[@biggerpockets]

That's really good to know! We try our best to get accurate numbers, but we can't analyze every single market to determine the exact numbers for expenses. This is why we ask our users who submit a deal to give as much information as possible.

[@Andy-ir1sj]

perhaps invest a little upfront and get separate meters for each unit so you don' t have to pay utilities,

[@CarlHebert1967]

Maine does not consider 4 unit commercial. I have bought two, both in Lewiston, ME.

[@imonlyheretoarguewithidiots]

Why would he have to pay for electricity...that's the tenant's responsibility...

[@cityslickercamp259]

Just going by the picture - you can see four separate gas meters on the side of the house which would suggest that each tenant pays their own heat.

[@vickyshambo4961]

Taxes?

[@drivinmath8464]

Can I get 20% off now that I've already paid up front.

[@vickyshambo4961]

No taxes, this works, but with taxes, it's not a nice

[@tonakis68]

Why include expenses that are paid by tenants?

[@biggerpockets]

If you include expenses in the fixed landlord expenses and you're still cash flowing it's safe to say you'll be good! It's just a way to be conservative with the numbers.

[@Walina1001]

No you are just making up numbers. Also cash flow is not a profit metric. A property can cash flow and still not be profitable. @@biggerpockets

[@davidpinlac3129]

@@Walina1001 Hi, I'm just getting into real estate investing. Interested in learning more details behind closed doors. Would love if you could explain why a property that cash flows may still not be profitable. Thanks

[@Walina1001]

@@davidpinlac3129 Cash flow is a made up marketing term used to lure novice investors to crap properties in crap areas. If it was a real term there would be a definition for it. Ask 10 people and you will get 10 different answers on what they think cash flow means. All this "cash flow" is on paper. Legal fees for evictions and lost rent and turnover will eat all that cash flow. Two percent appreciation!! That is not even keeping up with inflation. And I doubt it was even that much. If you went back 30 years at 2% what would be the value? About $61,000!!! After the capex of roof and paintings etc. do you really see any profit there? Nope, you will be pulling out that cash flow to make up the difference. Now for comparison I bought a 1100 sf single family in CA in 1988 for about $85,000. It is worth about $800,000+. Rents went from $850 to $3400!!! That is how you make money in real estate.

[@86Corvus]

An old house like this would be demolished after 10 years. You think it will stand for 30 more years and the rental value will rise? Thats betting on that the real estate value wont stagnate or drop.

those are some cheap taxes xD 28% here + real estate tax + (condominium if it's a building)

[@jamesongagne3996]

This video did not explain how to figure out any of the entered data. :(

[@clambert2020]

Something doesn't seem quite right. With income at $2250 and estimated expenses at $1892 the expense to income ratio is 84% with $358 cash left. But if the buyer uses the Bigger Pockets 50% ratio then he has $692 per month in cash. Yes that math is correct. However, the only way to get these expenses down to 50% is to actually reduce the amount spent on expenses or raise the rent. Many landlords who ignore the operating expense warning signs at time of purchase later try to improve cash flow by deferring maintenance. That is how you run your property into the ground and become a slum lord. Many real estate investors use the 50% expense to income ratio as a GO-NO GO metric. Coupled with NOI and the 1% to 2% rule you can get a pretty clear picture of a good deal vs lousy.

[@supersonice4]

clambert2020 ok, finally someone with great observational skills. Was skimming through the thread and your comment is best. Now I do have a question though. I’m doing the math on my own, trying to figure out how he got that number for the NOI. May you please shed some light please!

[@clambert2020]

@@supersonice4 I looked at that video eight months ago. I'll try to go back and figure out an answer to your question.

[@clambert2020]

@@supersonice4 I took another look at the video. Two things jumped out. 1) Assuming zero initial repairs going into a 100+ yrs old property is fantasy land. 2) I believe the monthly expenses are possibly 25 to 50% low. NOI equals gross income - expenses. In my opinion the NOI in this video is flawed for the two reason I stated. I don't have their calculators so that is about the best I can offer you. Hope it helps.

[@clambert2020]

@@supersonice4 Another thing I forgot to mention is the finance interest rate. I think they used 4.25? Yeah maybe for a single family home you are going to live in. For a multi family purchase by a first time investor you should probably figure somewhere around 8 percent or more. In today's market that rate could be much higher and changing rapidly.

[@codygordon59]

Some of these comments. There is no need to be rude sir.

[@MusketeerInc]

How can he have a 5% vacancy rate with only 4 units? If 1 person leaves, that's a 25% vacancy rate per month

[@siddsakkik]

Musketeer Inc vacancy is calculated for the whole year

[@MusketeerInc]

@@siddsakkik this is more an estimation then?

[@siddsakkik]

Musketeer Inc yes its an estimation in this video . Normally you’ll get the vacancy rates of a particular area or block . Like for eg the vacancy rate of this building is 2% That means of all the time in the year its being rented out , only 2% of the time its vacant .

[@MusketeerInc]

@@siddsakkik okay I see. Do you personally do Multi Family as well?

[@milo74156]

Why wouldn't you add some repairs most properties need repairs so all that info isn't even close

[@ogstackadollor85]

Hey my name is Xavier I’m a new investor (1year) in the Kansas City market looking to find good deals on MF and SF also I would like to get to know anyone in the area that would like to hunt for deals... P.s Driving for dollars is pretty fun on a motorcycle

[@wojak168]

how did this go a month later did you buy any deals are you making any money?

[@jacobmichal4771]

How is electric only 200

[@joef5661]

That electric bill is for the common areas. Presumably, each apartment unit would be separately metered and the tenant would pay for their own usage (though that is not always the case).

[@daniels4149]

👍

[@Shelovesboony]

Hol up. Wait a minute. 1881 ?!?!?

[@ChrisSchaff]

Right? I was trippin

[@jaydenstokes3665]

Maine is not a good state to buy property

[@CarlHebert1967]

Not, true. Maine is like all states, you have to know your markets and where to buy. Maine is a pretty good sized state with several different real estate markets in it. Portland is on fire, whereas Lewiston is not.

[@basharyassin7091]

u

[@cubbyv]

comment

[@Xanatissimo]

Cap rate = how many years you will have your ROI? Not exactly. It's simply the ROI, it's net operating result of the property divided by the market property value. So in a given area you might have better returns than in other areas. Humm...

[@Walina1001]

Cap rate and ROI are not the same concept. A cap rate Is not a return

[@georgerancourt4201]

After using your calculator...I just lost all respect for you guys...

[@tomcasey7784]

$110,000 for a fourplex? Must be pretty run down. No immediate repairs needed to incorporate into calculations?

[@THEGAMINGHELP101]

Nice calculators but if you know how to use excel you can make a calculator like this yourself. Of course it wont look so nice.

[@ericslingerland5472]

Well that is just blatantly untrue.... you can format things very nicely in excel.

[@solo.life.travels7215]

Is garbage paid monthly or yearly

[@marylemke6001]

Great calculator. Do you have resources for the Canadian market?

[@chicnycdesign8486]

I would love more of these calc deals