Companion to: Real Estate Decoded Chapter 6 (Small Multifamily) / 16 (Institutional MF) - Workbook tab 03_Multifamily
Inputs
Outputs
Gross potential rent (annual)
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Effective gross income
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Operating expenses
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Net Operating Income
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Going-in cap rate
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Loan amount
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Annual debt service
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Cash flow after debt service
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DSCR
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Cash-on-cash return
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How to read this tool: Multifamily institutional cap rates run 5.0-6.0% in Sun Belt prime, 6.0-7.0% in secondary markets. Operating expense ratio of 42% assumes garden-style stabilized; high-rise and value-add ratios differ. Lender DSCR minimum is typically 1.25x for agency debt, 1.20x for bank debt.
What this tool is for
Multifamily is the largest institutional real-estate weight by AUM. The pro-forma discipline is universal across operator scales - from the cottage-operator buying a 12-unit to Greystar acquiring a 400-unit value-add. This tool gives you the screen-level math that gates the deeper underwriting work.
Benchmarks the practitioner watches
- Sun Belt institutional cap rates 5.0-6.0%
- Secondary market cap rates 6.0-7.0%
- Operating expense ratio 38-42% garden style
- Agency DSCR floor 1.25x (Fannie DUS, Freddie SBL)
- Bank DSCR floor 1.20-1.25x
Common mistakes
- Underwriting to in-place rents without accounting for loss-to-lease and recent leasing trend
- Missing the property-tax reassessment hit at acquisition in markets like Texas, Florida
- Underestimating the turn cost on heavy-rollover units (interior cost $3-6K/unit on value-add)
- Forgetting CapEx reserve - 4-6% of EGI minimum on garden-style
Educational reference only. Not investment, tax, legal, or real-estate advice. Confirm market-specific cap rates, lender terms, and tax overlay with your own advisors before acting.