The difference between successful multifamily investors and everyone else isn't access to deals — it's the ability to quickly and accurately analyze them. Most investors waste hours on deals that don't pencil, or worse, miss great deals because they're too slow.
The goal: A disciplined 30-minute framework that gives you a clear go/no-go on any deal. Each step is a gate — if it fails, stop and move on.
Step 1: The 60-Second Sniff Test (Minutes 0-1)
Before you open a spreadsheet, answer three questions:
- Is the cap rate in your buy range? For Houston MF ($500K-$2.5M), target 6.5-10.5% depending on submarket and condition. (Understanding cap rate compression trends will help you calibrate.)
- Is the price per unit reasonable? Houston benchmarks: $40K-$80K/unit (C-class), $80K-$130K/unit (B-class), $130K-$250K/unit (A-class).
- Does the location match the strategy? Value-add in a gentrifying submarket makes sense. Value-add in a declining one does not.
Pro tip: If all three pass, continue. If not, move on. Discipline here saves hours of wasted analysis.
Step 2: Rent Roll Analysis (Minutes 1-8)
The rent roll is the single most important document in any multifamily deal. If the seller won't provide it, walk away.
What to check:
- Current rents vs. market rents. Compare each unit to Apartments.com, Zillow, and Rentometer. A 10-20% gap below market = upside.
- Vacancy and delinquency. Calculate economic occupancy (rent collected / rent possible). Physical occupancy of 90% means nothing if 15% of tenants are behind.
- Lease terms. Month-to-month gives flexibility to raise rents immediately. Long-term leases provide stability.
- Tenant concentration. If one tenant occupies 40%+ of the building, losing them destroys your cash flow.
Step 3: Expense Verification (Minutes 8-15)
Warning: Sellers' expense numbers rarely reflect what you'll actually pay. Build your own budget from scratch.
Key expense line items:
| Expense | How to Estimate | Typical Range |
|---|---|---|
| Property taxes | Purchase price x local tax rate (see our TX tax protest guide) | 2.2-2.4% in Harris County |
| Insurance | Get a broker quote | $800-$1,500/unit/year |
| Maintenance | % of gross rent | 5-8% (8-10% for pre-1980) |
| CapEx reserves | % of gross rent | 3-5% |
| Management | Even if self-managing | 8-10% of gross rent |
| Utilities (owner-paid) | Water/sewer/trash | $75-$125/unit/month |
Pro tip: If the seller's T-12 shows a 28% expense ratio, they're hiding costs or deferring maintenance. Houston Class B/C multifamily runs 40-50% total expense ratio.
Step 4: NOI and Valuation (Minutes 15-20)
Calculate Net Operating Income:
Gross Potential Rent (all units at market rate)
- Vacancy Loss (5-8% for Houston)
- Credit/Collection Loss (2-3%)
= Effective Gross Income
- Total Operating Expenses
= Net Operating Income (NOI)
Valuation check:
Property Value = NOI / Cap Rate
Calculate NOI both ways — with current rents (day-one NOI) and market rents (stabilized NOI). The gap between them is your value-add opportunity.
Step 5: Debt Analysis (Minutes 20-25)
Model realistic financing. For a $1.2M property at 70% LTV:
| Parameter | Value |
|---|---|
| Loan amount | $840,000 |
| Interest rate | 6.5% |
| Amortization | 30 years |
| Annual debt service | ~$67,600 |
Key debt metrics to calculate:
- DSCR (Debt Service Coverage Ratio) = NOI / Annual Debt Service. Lenders require 1.20-1.25x minimum. Below 1.0x = hard no.
- Debt Yield = NOI / Loan Amount. Target 9%+ for comfortable underwriting.
- Cash-on-Cash Return = Annual pre-tax cash flow / Total cash invested. Target 6-10% at entry.
Step 6: Return Analysis (Minutes 25-30)
Model your total return over the hold period.
Levered IRR (Internal Rate of Return) — the gold standard metric:
- Year 0: Total cash invested (down payment + closing + renovation)
- Years 1-5: Annual cash flow after debt service
- Year 5: Sale proceeds (projected NOI / exit cap rate - loan balance)
Target IRRs for Houston MF:
| Strategy | Target IRR | Target Equity Multiple |
|---|---|---|
| Core/Core-Plus (Inner Loop) | 8-12% | 1.5-1.8x |
| Value-Add (renovation) | 15-22% | 1.8-2.5x |
| Opportunistic (distressed) | 20-30% | 2.0-3.0x |
Critical: Run three scenarios — Bull (rent growth +1.5%, exit cap -50bps), Base (your estimates), Bear (rent growth -1.5%, exit cap +50bps). If the deal works in the bear case, it's a strong deal. If it only works in the bull case, it's speculation.
The Go/No-Go Decision
After 30 minutes, you should be able to answer:
- Does the day-one NOI cover debt service with 1.25x+ DSCR? If no, pass.
- Does cash-on-cash exceed 6% at entry? If no, too thin.
- Does levered IRR exceed 12% in the base case? If no, insufficient return for the risk.
- Does the deal survive the bear case? If no, you're counting on the market to save you.
If all four are yes, submit an LOI. If one or two are marginal, dig deeper. If three or more are no, move on.
Tools That Make It Faster
properlocating's acquisition model lets you input purchase price, financing terms, rent assumptions, and exit cap — and instantly see IRR, equity multiple, and cash-on-cash across a sensitivity matrix. Combined with our property screener that pre-scores every deal, you can triage 10 deals in the time it takes to underwrite one by hand.
Related Reading
- Understanding Cap Rate Compression in Houston Submarkets — Why cap rates are tightening and what it means for your acquisition strategy
- Value-Add Multifamily: The Renovation Playbook That Actually Works — How to systematically increase NOI through operational and renovation improvements
- 5 Things to Know Before Your First Multifamily Investment — Essential knowledge for first-time investors entering the Houston market
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