What changes when there are eight doors instead of one
Small multifamily is underwritten as a business rather than as a house. A single-family rental is worth roughly what comparable houses sold for; an apartment building is worth what its income supports, which means the valuation and the operations are the same conversation. That is why this page leads with net operating income and cap rate rather than with the mortgage payment.
It also changes which errors matter. One vacant unit out of eight costs you an eighth of the rent, not all of it, so income is steadier. But expenses that a single-family landlord barely notices — a shared water bill, common-area lighting, somebody to field calls from eight households — become permanent monthly lines, and they are the ones most often left out of a seller's numbers.
Reading the example this page loads with
The defaults describe an eight-unit building priced above what its income supports. These figures are illustrative — a teaching example, not market data for any particular city.
| Input | Value |
|---|
| Units · purchase price | 8 · $920,000 |
| Rent per unit · other income | $1,150 · $150 |
| Vacancy | 6% |
| Down · rate · term | 25% · 7.25% · 30 yrs |
| Taxes · insurance (annual) | $14,000 · $9,000 |
| Utilities · admin (monthly) | $600 · $100 |
| Management · maintenance · CapEx | 7% · 6% · 5% |
Eight units at $1,150 is $9,200 of gross potential rent. Take 6% vacancy and add $150 of other income and effective gross income is $8,798. Operating expenses total $4,273 — taxes and insurance at $1,167 and $750, utilities $600, admin $100, and $1,656 across management, maintenance and capital reserves. Net operating income is $4,525 a month, or $54,304 a year.
Against an all-in cost of $920,000 that is a cap rate of 5.90%. The $690,000 loan at 7.25% costs $4,707 a month, which is more than the building earns, so monthly cash flow is -$182 and cash-on-cash return is -0.88% on $248,000 of cash. At the 7% target cap rate entered, the building is worth $775,771 — $144,229 below the asking price.
Why a building earning $54,304 a year loses money
The property earns 5.90% unlevered while the loan costs 7.25%, and when the cap rate sits below the borrowing rate the debt subtracts from your return rather than adding to it. That is the explanation for positive income and negative cash flow in the same building.
The comparison worth making precisely is not cap rate against interest rate, though, because an amortizing loan costs more than its rate — it repays principal too. The honest measure is the debt constant: $4,707 a month on a $690,000 loan is 8.19% a year, and since the loan covers 75% of the price, servicing it consumes 6.14% of the purchase price annually against a 5.90% cap rate. The 0.24-point gap is the monthly shortfall.
That framing also tells you how far off the deal is. Cash flow turns positive at a rate just under 6.86% — about forty basis points below the rate entered — so this is a deal that a genuinely better quote could rescue, unlike one that is mispriced by six figures. The max offer figure attacks the same gap from the other side. And switching purchase type to Cash produces $54,304 a year on $938,000 invested, a 5.79% return, which is simply the cap rate again after closing costs: with no loan there is no leverage to be negative.
The expense ratio, and why sellers' numbers run low
Operating expenses here are 48.6% of effective gross income, which lands near the proportion operators commonly expect for small multifamily once every line is counted. If a seller's numbers show 30%, the gap is almost never efficiency — it is lines that have been left out.
The usual omissions are management, because the seller self-manages and does not pay themselves; capital reserves, because the roof has not needed replacing yet; and maintenance, because an owner who does their own repairs records parts but not labor. Each is a real cost to you even if it was not a cash cost to them. The page keeps management, maintenance and capital reserves as separate percentage lines precisely so they cannot quietly vanish, and takes them against gross potential rent rather than collected rent, which is the more conservative base.
Price per unit and gross rent multiplier
This example works out to $115,000 per unit and a gross rent multiplier of 8.33 — the price divided by annual gross rent. Both are comparison shortcuts rather than underwriting, and both are useful for exactly one thing: sorting several buildings quickly before you spend an evening on any of them.
Their weakness is that neither knows anything about expenses. Two buildings at the same price per unit are not comparable if one pays the water bill and the other does not, and gross rent multiplier is blind to a tax reassessment that will arrive the moment the sale records. Use them to decide what to underwrite; never use them to decide what to offer.
What this page does not model
Commercial financing behaves differently from residential, and buildings of five units and up are generally financed commercially. That typically means a shorter term than the amortization — a balloon at five, seven or ten years — a lender sizing the loan to a debt service coverage minimum rather than to a loan-to-value alone, and sometimes a personal guarantee. This page amortizes over the full term you enter and does not model a balloon, so for a loan with one, treat the payment as right and the exit as a separate question.
Also absent: unit-by-unit rents, which matter when a building is half at market and half under long-tenured leases; the loss-to-lease that gap represents; any reassessment of property taxes after the sale, which in many jurisdictions follows the new price rather than the old one; and capital items with known remaining life. If the building has one meter for eight units, the utilities line is a cost you cannot bill back and it grows with usage you do not control.
Checking rents and comparing against a single-family deal
Enter rent per unit from the actual rent roll, then check it against market rent independently — a building bought on in-place rents that are above market is a building whose income falls at each turnover. Our guide on where to find your numbers covers which sources carry rents and taxes. The vacancy figure deserves the same treatment; the real cost of vacancy covers why turnover costs more than the empty days alone.
If you are weighing this against buying several houses instead, run one of them through the single-family rental analyzer and compare the returns at the same total capital. Eight doors in one building concentrates your exposure to one roof, one neighborhood and one tax bill, while eight houses spread it across eight of each and cost more to manage. The arithmetic rarely settles that trade on its own.