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RK#453 Before You Buy an Apartment Building, Check These 7 Numbers
Description
The speaker explains that before buying an apartment building they start with seven key numbers, not the purchase price, because deal quality depends on the underlying metrics. They verify and normalize NOI from actual collections, vacancies, concessions, expenses, taxes, insurance, repairs, and management fees, noting that small NOI changes can shift value significantly at a given cap rate. They then evaluate the going-in cap rate in market context, DSCR (NOI vs. annual debt service) to ensure the property can withstand changes in rates, occupancy, or expenses, and LTV to avoid over-leverage. They stress-test rent growth assumptions against real market drivers and scenarios, scrutinize the expense ratio for value-add opportunities, and use price per unit plus required CapEx per unit to determine true basis. The core lesson: don’t fall in love with amenities—NOI and conservative underwriting drive returns and protection.
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