How to Evaluate a Multifamily Investment Property: A Guide for Brokers & Partners

When working with real estate investors, understanding how to calculate the value of a multifamily property is essential to helping them secure the right financing and maximize their returns. As a residential mortgage broker, commercial mortgage broker, private lender, or referral partner, clients depend on you for more than the funding they need—they come to you to guide them into making the correct investment choices.

Multifamily properties present attractive opportunities, but only when priced appropriately. When an investor overbids or misestimates potential revenue, their return on investment can dwindle rapidly. As a wholesale lending partner, you can facilitate value by leading clients through significant valuation techniques to ensure they invest intelligently and in line with their future cash flow objectives.

Let's dissect the main components of evaluating a multifamily investment property so you can serve your clients more effectively in making their decision.

1. Determine the Net Operating Income (NOI)

The Net Operating Income (NOI) is perhaps the most important measurement to gauge a property's profitability. Unlike an investor's credit history, NOI directly represents the performance of the property financially and therefore is a solid indicator of value.

Formula for NOI:

NOI = Gross operating income − operating expenses

Gross income includes all revenue streams, such as:

• Rental income
• Parking fees
• Laundry services
• Other tenant-paid utilities

Operating expenses cover the costs of managing and maintaining the property, including:

• Property management fees
• Insurance
• Utilities
• Maintenance & repairs

Why This Is Important to Brokers: NOI is what lenders use to determine eligibility for a loan, the amount of a loan, and risk. By assisting your clients in calculating NOI correctly, you become a trusted ally in their investment process.

2. Understanding Capitalization (Cap) Rates

Cap rates are another key factor to consider in determining multifamily property value. A cap rate is the potential return on investment should an investor pay cash for the property.

Formula for Cap Rate:

Cap Rate = Net Operating Income (NOI) / Property Value

Cap rates vary by market conditions, location, and perceived investment risk.

• Higher cap rates indicate greater risk but also the potential for higher returns.
• Lower cap rates suggest lower risk but often come with a premium purchase price.

For Brokers & Lenders: Comparing cap rates across markets helps you help your clients see how potential deals compare and decide if a transaction fits their investment strategy and tolerance for risk. 

3. Property Valuation Methods: Which One Works Best?

When guiding investors, you need to be familiar with the most common valuation methods:

A. The Income Approach (Best for Large Multifamily Properties)

This technique targets the revenue that a building brings in and thus is the best valuation process for multifamily investment.

Formula for Property Value Using the Income Approach:

Property Value = Net Operating Income (NOI) / Cap Rate

For Brokers & Lenders: Most lenders utilize this method to evaluate loan amounts, so having proficiency in it allows you to guide your clients towards financing choices that suit their investment objectives.

B. The Sales Comparison Approach (Best for Smaller Properties)

This technique uses comparisons of current sales of comparable properties within the same neighborhood to estimate a fair market value.

• Effective in stable markets where recent sales data is available.
• Less useful in markets with volatile pricing or limited comparable sales.

For Brokers & Lenders: Investors count on you to present correct comparable sales information, allowing them to justify loan requests and negotiate improved purchase terms.

C. The Cost Approach (Less Common but Still Useful)

This approach estimates how much it would cost to rebuild the property from scratch, including depreciation.

• Most useful for newer properties or when comparables are unavailable.
• Less relevant for older multifamily properties with significant depreciation.

For Brokers & Lenders: While rarely used for investment decisions, the cost approach can be helpful when advising clients on insurance valuations or new construction financing.

4. The Importance of Due Diligence

Before an investor commits to a multifamily property, thorough due diligence is essential.

• Financial Review: Verify rental income, lease agreements, and existing debt obligations.
• Property Inspections: Assess structural integrity, plumbing, electrical systems, and potential maintenance costs.
• Legal & Compliance Checks: Identify outstanding violations, unpaid taxes, or pending lawsuits. 

For Brokers & Lenders: Investors who don't do their due diligence risk being saddled with unforeseen financial costs. By informing them of possible risks, you ensure they get financing for sound investments—enhancing your reputation as a savvy mortgage partner.

5. Market Conditions & Location: A Make-or-Break Factor

We've all heard the phrase: "Location, location, location." The success of a multifamily investment depends on the local real estate market and economic environment.

Key Factors That Impact Property Value:

• Population Growth: Higher demand means better rental income potential.
• Employment Rates: A strong job market supports stable occupancy rates.
• Supply & Demand: An oversaturated rental market can lower returns.
• Future Development Plans: Nearby infrastructure projects can increase property value.

For Brokers & Lenders: You can assist investors in selecting high-growth neighborhoods where their investments are more likely to increase in value—making you a valuable partner in their long-term success.

6. Financing Considerations for Multifamily Investments

Wholesale lenders are often the go-to source for adjustable financing arrangements. Your success as a broker depends on your ability to arrange the proper loan structure.

Popular Loan Options:

• Bridge Loans: Ideal for investors who need short-term financing for property improvements.
• DSCR Loans: Debt-Service Coverage Ratio loans are great for investors who want to qualify based on property income rather than personal income.
• Traditional Bank Loans: Suitable for well-qualified investors with strong financials.

For Brokers & Lenders: Educating yourself on various loan products allows you to help investors maximize leverage while staying financially stable—positioning you as a preferred expert for multifamily financing.

Why This Matters for Brokers & Lending Partners

Valuing a multifamily property correctly is crucial for making sound investment decisions. As a mortgage broker, private lender, or referral partner, your role goes beyond securing financing—you are a trusted advisor who helps clients navigate market conditions, valuation strategies, and risk assessments.

By mastering how to evaluate a multifamily investment property, you can:

• Strengthen your relationships with clients by offering expert guidance.
• Increase repeat business by helping investors scale their portfolios.
• Position yourself as a go-to mortgage partner for multifamily financing solutions.

RCN Capital

At RCN Capital, we offer specialized flexible financing options that meet the needs of wholesale lending professionals and their customers. Whether your investors are buying their first multifamily property or growing their portfolio, we offer the competitive loan solutions they require to thrive.

Ready to assist your clients in securing financing that meets their needs? Contact RCN Capital today to find out more about our real estate loan programs!