Thinking About Buying an Apartment Building? Here’s How to Analyze the Deal for Multifamily Investing

Have you ever dreamed about owning an apartment building?

Picture it—you collect rent, grow your wealth, and finally say goodbye to the idea of working for someone else forever. But here’s the truth: analyzing a multifamily deal isn’t as simple as looking at the price tag or the location.

Yes, “location, location, location” matters. And yes, the purchase price matters. But smart investors know those are just the starting points. At IBC Partners, we help everyday people and seasoned investors figure out whether an apartment building is truly a good deal—or a financial headache waiting to happen.

There are many factors we use to see if a multifamily purchase is a good deal or not but right now we will talk about the 3 most important factors, Price Per Unit, Net Operating Income and Cap Rate.

Here’s how we break it down:

1. Price Per Unit (PPU) – Apples to Apples

Let’s play a quick game:

• Apartment A: 9-unit building that costs $1,000,000.

• Apartment B: 90-unit building that costs $10,000,000.

  
  

At first glance, Option B sounds scary (ten million is a lot of zeros!). But when you calculate price per unit both buildings are the same:

• $1,000,000 ÷ 9 = $111,000 per unit

• $10,000,000 ÷ 90 = $111,000 per unit

  
  

Now here’s the kicker: location can completely change that number. In the Beverly Hills, CA area, the average price per unit is about $565,000. In Pasadena, CA it’s closer to $347,000. And in Lancaster, CA the average price per unit is $245,000.

If you’re analyzing a multifamily deal, don’t just look at the price per unit—check how the price per unit stacks up against the average price per unit for the area.

2. Net Operating Income (NOI) – Show Me the Money

If you want to know whether an apartment building is worth buying, this formula is your best friend:

Income – Expenses = Net Operating Income (NOI)

Simple, right? Investors and lenders love this number because it shows whether the property is cash-flow positive. If the property isn’t making money on paper, chances are it won’t make money in your pocket either.

Many listings include income and expense information right in the marketing materials. But if it’s missing (and it often is), don’t worry—we at IBC Partners can help you track it down and crunch the numbers.

3. Cap Rate – Your Return on Investment Reality Check

The cap rate is the golden child of multifamily analysis. It tells you the annual return on your investment if you paid cash for the property. The cap rate helps you understand to what degree this multifamily investment will be profitable.

Here’s the formula:

Net Operating Income ÷ Purchase Price = Cap Rate

Cap rates vary by market:

• In hot, high demand markets like Los Angeles, cap rates tend to be lower. The average cap rate in LA is about 5%.

• In smaller markets or markets with less demand, cap rates tend to be higher. For example, in Fresno, you might see 6.5% or higher cap rate.

  
  

A higher cap rate often means better returns, but it can also signal more risk. Either way, ignoring the cap rate is like ignoring the gas gauge on a road trip—you might still make it, but why chance it!

The Big Picture

A solid multifamily investment isn’t just about the sales price. You need to consider:

1)    Price per unit

2)    Net operating income

3)    Cap rate

These three metrics alone can save you from a bad deal—or give you the confidence to move forward with a great one.

Ready to Analyze Your Next Deal?

At IBC Partners, we’ve built a simple system to help investors like you analyze multifamily properties. Whether you’re brand-new to apartment investing or looking to scale your portfolio, we’ve got your back.

Next move is yours. Dreaming is free, but smart investing starts with action. Head over to IBC Partners and schedule your free session. Let’s turn that dream of owning an apartment building into your reality. If you’ve got a property in mind, don’t play guessing games with your future. Book a free session today, and let’s run the numbers together.

Always Remember,

Believe. Plan. Execute.

IBC Partners

Integrity Business Consulting LLC

NAI Capital Commercial Inc.

DRE #02212547

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