Most investors analyze a multifamily deal wrong. They look at the asking price, estimate the rent, subtract the mortgage, and call it cash flow. That's not analysis — that's hope with a calculator. Here's the framework CCIM-trained analysts actually use.
Step 1: Build the Rent Roll
Start with the actual unit mix and current rents — not pro forma. Pull the T-12 (trailing 12-month income statement) and verify rent against market comps. The gap between actual rents and market rents is your value-add upside — but don't underwrite it until you have a clear path to closing that gap.
- Total units × average rent = Gross Potential Rent (GPR)
- Apply vacancy factor (market rate: 5–8% for stabilized assets)
- Add other income: laundry, parking, pet fees, storage
- Result: Effective Gross Income (EGI)
Step 2: Calculate NOI
Net Operating Income = EGI − All Operating Expenses. Operating expenses typically run 35–50% of EGI for multifamily. The seller's T-12 will understate expenses — always normalize for management (8–10% if not currently managed), realistic CapEx reserves ($100–200/unit/year), and property taxes at post-sale assessed value.
Step 3: Calculate Cap Rate
Cap Rate = NOI ÷ Purchase Price. This is your baseline yield metric, unaffected by financing. In 2026, Bay Area multifamily trades at 4–5.5%. Secondary California markets (Sacramento, Fresno, Inland Empire) run 5.5–7%. Compare your subject property's cap rate to traded comps — not to the seller's asking cap rate, which is almost always based on inflated pro forma NOI.
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Cap Rate Calculator →Step 4: Run the DSCR
Before you can close, your lender will underwrite the DSCR. Standard minimum is 1.20–1.25x for agency multifamily loans (Fannie/Freddie). Run DSCR at your target loan amount and rate before you go under contract — if the deal doesn't support the financing, you'll find out at the lender's appraisal instead of at your desk.
Step 5: Model the IRR
IRR is the ultimate performance metric because it captures both cash flow during the hold AND appreciation at exit. Model a 5-year and 7-year hold with a realistic exit cap rate. If you're buying at a 5.5% cap, don't model an exit at 5.5% — use 6% or 6.5% to stress the return. If IRR is still above 12–15% with a compressed exit, the deal holds up.
Step 6: Stress Test
Run three scenarios: base case (current rents, market vacancy), downside (10% rent decline, 10% vacancy increase), and severe (20% rent decline, 20% vacancy). The deal should cash-flow in the base case and survive — not go underwater — in the downside scenario. If the severe scenario produces negative cash flow, make sure your reserves can cover it for 6–12 months.
Step 7: Analyze the Full Deal in 60 Seconds
The framework above is what institutional analysts do in Argus Enterprise — which takes months to learn and costs hundreds per month. The RealEstate-Analytics.ai platform runs the same CCIM-level framework — cap rate, IRR, DSCR, cash-on-cash, equity multiple, 10-year projections, and stress testing — in under 60 seconds, free, in your browser.
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