How to Analyze a Multifamily Deal (Cap Rate, NOI & Cash Flow Explained)
How to Analyze a Multifamily Deal (Cap Rate, NOI & Cash Flow Explained)
When you’re investing in multifamily real estate, numbers tell the story.
Whether you’re looking at a duplex in Livonia or a 12-unit in Detroit, knowing how to calculate Cap Rate, NOI, and Cash Flow separates smart investors from risky guessers.
Here’s a breakdown of how to evaluate any multifamily deal like a professional.
💰 1. Start With Gross Income
This is your property’s total annual rent before expenses.
Example: If you have four units renting at $1,200/month, your gross income = $57,600/year.
🧾 Pro Tip: Always verify rent rolls and compare to market rent in Metro Detroit neighborhoods like Grosse Pointe, Redford, or Dearborn.
⚙️ 2. Subtract Operating Expenses
These include:
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Property taxes
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Insurance
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Maintenance & repairs
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Utilities (if landlord-paid)
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Property management fees
If expenses total $18,000 per year, your Net Operating Income (NOI) = $57,600 – $18,000 = $39,600.
✅ NOI tells you how much profit your building produces before debt and taxes.
📈 3. Calculate the Cap Rate
The Capitalization Rate (Cap Rate) helps you measure an investment’s return relative to its price.
Formula:
Cap Rate = (NOI ÷ Purchase Price) × 100
Example: If NOI = $39,600 and price = $550,000
→ Cap Rate = 7.2%
📊 In Metro Detroit, small multifamily properties typically trade between 7–10% cap rates, depending on condition and location.
💵 4. Factor in Financing and Cash Flow
Your cash flow is the money left after mortgage payments.
Example:
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NOI = $39,600
-
Annual loan payments = $28,800
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Cash Flow = $10,800/year
That’s $900/month — a solid target for a 4-unit building.
🧠 Pro Tip: Positive cash flow + long-term appreciation = true wealth.
🏘️ 5. Stress-Test the Numbers
Before buying, test worst-case scenarios:
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10% vacancy
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Higher insurance/taxes
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Unexpected repairs
If it still cash-flows, it’s a strong deal.
This conservative approach protects you from surprises and keeps your portfolio stable through market shifts.
🧮 6. Create a Proforma (Future Projection)
A proforma forecasts your income and expenses after improvements or rent increases.
Example: If rents rise 5% and expenses drop 3%, your NOI — and property value — can jump dramatically.
S&P Realty prepares detailed investment proformas so buyers see clear 1-, 3-, and 5-year return projections before making an offer.
💼 7. Compare Deals Objectively
To evaluate multiple opportunities:
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List Cap Rate, Cash Flow, and ROI for each.
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Rank them by yield and risk level.
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Consider neighborhood stability and tenant quality.
This data-driven method helps you avoid emotional decisions and stay focused on long-term performance.
🚀 8. Work With an Experienced Multifamily Broker
Analyzing deals is one thing — sourcing off-market properties, negotiating terms, and verifying financials is another.
That’s where Shane Parker and S&P Realty come in.
We help investors locate, underwrite, and close profitable multifamily properties across Wayne, Oakland, and Macomb Counties — from Detroit apartment buildings to suburban duplexes.
📞 Ready to Analyze Your Next Deal?
Get a professional, no-pressure investment consultation.
We’ll review your goals, run the numbers, and help you find a property that fits your cash-flow targets.
👉 Contact S&P Realty today to start building your multifamily portfolio.
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