How to Evaluate a Multifamily Deal in Capital Region

Deal Analysis Reality: 82% of failed multifamily investments result from overestimating rents or underestimating expenses, not overpaying on purchase price (Journal of Real Estate Research 2024).

Why Price Doesn't Tell The Whole Story

Deal A: $1.8M, looks cheap

• Annual NOI: $70,000
• Negative cash flow after debt service
• No upside potential
• Limited exit options
• Verdict: PASS (it's a liability)

Deal B: $2.4M, seems expensive

• Annual NOI: $140,000
• Strong positive cash flow
• 15% rent growth potential = $60K additional NOI
• Multiple exit paths
• Verdict: BUY (fundamentals justify premium)

The lesson: An expensive deal with strong fundamentals beats a cheap deal with poor fundamentals. Stop looking at price first.

The 3-Pillar Framework

Pillar 1: Positive Cash Flow (Non-Negotiable)

Cash flow answers: "Can this property pay for itself?"

Why it matters:

• If rents don't cover expenses + debt, you have a job, not an investment
• Cash flow sustains the property during tough times
• Cash flow compounds and builds wealth

How to calculate:

Example: 20-unit building

• Average rent: $1,200/month per unit
• Annual gross income: $288,000
• Operating expenses (utilities, insurance, maintenance, taxes): $86,400
• Annual mortgage (80% LTV at 6.5%): $96,000
• Property management (8%): $28,800
• Maintenance reserve (5%): $14,400
• Total annual expenses: $225,600
• Annual cash flow: $62,400 ($5,200/month)

Red flag: If property barely breaks even, a single vacancy or expense increase puts you underwater.

Good benchmark:

• At least +$200/month per unit on minimum
• Or +20% of gross rental income

Pillar 2: Value-Add Upside (Profit Multiplier)

Upside answers: "How can I increase the value after acquisition?"

Three main levers:

A. Rent Growth Can you push rents higher through market repositioning, renovations, or better management?

Example:

• Current rents: $1,100/month per unit
• Market rents: $1,300/month per unit
• Gap: $200/month per unit
• On 20 units: $200 × 20 × 12 = $48,000 additional annual NOI
• At 5% cap rate: $960,000 additional property value

B. Operational Improvements Many properties are undermanaged. Improvements include:

• Reducing vacancy (better marketing, tenant retention): $20K-$50K
• Negotiating vendor contracts: $10K-$30K
• Eliminating wasteful spending: 5-15% savings
• Implementing professional management: improved collections

C. Capital Improvements Renovations create value and justify rent premiums.

Upside calculation example:

• Property NOI today: $60,000
• Rent growth upside: +$30,000 (push rents to market)
• Operational improvements: +$15,000
• Capital improvement justification: +$15,000
• New NOI potential: $120,000
• Value increase at 5% cap rate: $1,200,000 on original investment

Key question: Is the upside realistic? Can you actually execute it?

Pillar 3: Exit Strategies (Multiple Ways to Win)

Exit strategy answers: "How do I get my money out?"

Three primary exits:

A. Refinancing (Best for scaling) After 2-3 years:

• Property appreciated
• You paid down debt
• Creates accessible equity
• You can refinance and deploy capital to next deal
• Original property continues generating income

Example:

• Buy: $2,000,000
• After 3 years: Worth $2,300,000 + $200,000 principal paid
• Refinance: Pull out $400,000
• Deploy into next property
• Keep original property for income

B. Sale (Exit with profit) When market conditions favor selling:

• Lock in appreciation gains
• Deploy capital to better risk/reward markets
• Simplify portfolio
• Sometimes necessary for life changes

C. Long-Term Hold (Most underrated) Hold indefinitely for passive income:

• Tenants pay down debt completely
• Property appreciates 3-5%/year
• Rents grow 2-3%/year
• Creates generational wealth

Why exits matter: Flexibility is everything. If you only have one exit option (selling), market downturns trap you. Multiple exits = optionality.

The Deal Hierarchy: What Comes First

Agent perspective:

1. Lowest price possible
2. Location
3. Condition
4. Everything else

Investor perspective (RIGHT):

1. Strong cash flow? (Can this sustain itself?)
2. Realistic upside? (Can I add value?)
3. Multiple exits? (Can I be flexible?)
4. Everything else (location, price, condition matter but only after fundamentals)

Red Flags That Kill Deals

Red Flag 1: Negative Cash Flow

• Property "should" break even eventually
• Never buy hoping for appreciation to save you
• Vacancies and repairs will destroy you

Red Flag 2: No Upside

• Rents already at market
• Property already optimized
• Building systems aging
• Limited room to add value

Red Flag 3: Single Exit Path

• Can only sell (can't refinance or hold for income)
• Limited flexibility if market changes
• Forces bad timing decisions

Red Flag 4: Weak Management

• Can't tell if upside is real or inflated
• Hard to verify actual expenses
• May hide deferred maintenance

Quick Evaluation Checklist

Before spending time on a deal:

Cash Flow Questions:

• [ ] Does property generate positive cash flow?
• [ ] Is there 10%+ buffer for vacancy/expenses?
• [ ] Compare to comparable properties

Upside Questions:

• [ ] Are rents below market? By how much?
• [ ] Is property well-managed or sloppy?
• [ ] What capital improvements drive value?
• [ ] Can you realistically execute improvements?
• [ ] What's the realistic increase in NOI?

Exit Questions:

• [ ] Can this refinance in 2-3 years?
• [ ] What's the long-term hold value?
• [ ] What would make this attractive to buyers?
• [ ] How many exit paths actually exist?

Real Example: Capital Region Deal Analysis

Property: 12-unit apartment building in Schenectady

Assessment:

• ❌ Negative cash flow (deal killer)
• ✅ Upside potential (rents $200/month below market = $28,800 annual upside)
• ✅ Refinance potential after value-add
• Verdict: Not viable (negative cash flow is non-negotiable, even with upside)

Better deal (same market):

Assessment:

• ✅ Positive cash flow ($2,100/month)
• ✅ Modest upside ($100/month × 12 × 12 = $14,400)
• ✅ Refinance potential
• Verdict: SOLID DEAL (fundame

ntals work)

The Bottom Line

Professionals don't buy price—they buy fundamentals.

Sort your deal evaluation like this:

1. Does cash flow work? (YES → Continue | NO → Pass)
2. Is there realistic upside? (YES → Evaluate | NO → Pass)
3. Do exits exist? (YES → Analyze | NO → Pass)

Only then compare price and condition.

Stop falling in love with location or nostalgia. The numbers either work or they don't.

Ready to Analyze Your Next Deal?

If you're evaluating multifamily opportunities in the Capital Region, let's review your numbers using this framework.

Contact Saad Tai

• NY License: #10401373295
• FL License: #SL3651394
• Phone: 518-348-9535
• Specialization: Multifamily deal evaluation and acquisition