Why is It Important to Show Existing and Stabilized Financials in Multi-Family Underwriting?

 If you are investing in multi-family buildings / units then you've probably come across plenty of T-12s and done some financial analysis to figure out what the property is going to produce in cash flows based on expected occupancy, rent, and expenses over time and how that compares to the purchase price and any capex / renovations. One of the things you usually see in these models is the current rent rolls and pro forma, why is that?

Relevant Template:

The main reason is because the acquisition manager or real estate investor wants to know what opportunities there may be to improve the future performance of the building. It is one of the first things an acquirer will analyze.

This might be easy to analyze if there are just a few tenants, but when you have potentially 100s or 1,000s then trying to figure out where the opportunities are to improve vacancy, invest in renovations to raise rents, and reduce costs can be more difficult to quantify and a spreadsheet will be your friend here, as well as some conditional formatting to point out certain things (such as what units are a given % below current market rents).

Multi-family models typically include current operations and rent rolls to provide a comprehensive view of the property's financial performance and to assist in making informed investment decisions.

The current operations section of a multi-family model typically includes a detailed breakdown of the property's income and expenses, such as rent revenue, vacancy rates, property taxes, insurance, maintenance costs, and property management fees. This information is essential for investors to understand the property's profitability and to identify areas for potential cost savings or revenue growth.

The rent roll section of a multi-family model provides an overview of the current tenants, their lease terms, and the amount of rent they are paying. This information is critical for determining the property's potential rental income and identifying any lease expirations or tenant turnover that may affect the property's cash flow.

Overall, including the current operations and rent rolls in a multi-family model is important for providing investors with a clear picture of the property's financial performance, enabling them to make informed decisions about whether to invest in the property and how to optimize its performance over time.