How to Decide Whether a Multi-Unit Property Is a Worthy Investment

If you’re looking to get into the real estate investment game, you’re in luck. Today I'll show you how to determine whether or not a property is attractive as an investment based on its list price.

Let’s use a two-unit duplex listed for $500,000 as our example. Let’s also assume that the current rent for each unit is $1,300 per month.

To determine whether it’s a good investment based on the list price, here's what I do. I first take the $1,300 per unit and multiply it by two to get the monthly rent. Then I multiply that number by 12 to get the gross rent for the year: $31,00. The next step is to apply the gross rent multiplier. In this case, it’s 16. So I take $31,000, multiply it by 16, and get a potential value of the property at $499,920.

"Some simple math will help you determine if the property is a good deal."



Now let’s say I bought that same duplex for $500,000 but decided to put in another $100,000 in upgrades to increase the rent to $2,000 per month for each unit. What’s the unit worth in that case? 

The gross rent for the year at $2,000 per unit per month is $48,000. If I apply the same gross rent multiplier of 16, that property’s value is now $768,000. If I bought this property for $500,000 and dumped $100,000 into it, now I basically have $168,000 in equity on top of that. There are a few more expenses in there, but it just gives you a quick idea of how investors determine whether or not a property is attractive based on its price. 

If you have any questions for me, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.