CRE 101 · deweyluong.realtor

Multifamily Underwriting Explained: How to Value a Georgia Apartment Property on Income, Per-Unit Math, and Reserves

Buying an apartment property is not buying a building. It is buying a small business whose revenue is twenty households paying rent — and it has to be underwritten that way. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

Multifamily — from a duplex to a several-hundred-unit complex — is where many investors go after single-family rentals: many units under one roof, one loan, one management operation. But underwriting an apartment property is fundamentally different from buying a rental house. From five units up, the property is valued on income (NOI and cap rate), financed as commercial (the lender underwrites the property's own cash flow, measured by DSCR), and operated as a system of expenses where one missing line can flip the conclusion. This page walks through what changes at the 5-unit line, the documents to demand before computing anything, a full worked example, and the five-step underwriting sequence. The worked example uses made-up, rounded numbers to teach the mechanics. This page is general education, not investment advice.

What changes at five units

• Valuation switches to income. At 5+ units, value is driven mainly by NOI ÷ cap rate, like other commercial real estate — value rises when income rises, even if the neighborhood does not change. At 2–4 units, residential comparable sales still dominate.
• The loan becomes commercial. From 5 units, the lender sizes the loan off the property's own DSCR more than the buyer's personal income, on commercial terms and amortization. The 4/5-unit boundary decides both the financing channel and the valuation method — establish it first.
• Expenses become a system. Taxes, insurance, management, owner-paid utilities, repairs, payroll, and administration. Small multifamily expense ratios often run roughly 30–40% of effective gross income; an offering that shows far less is usually missing lines, not running a miracle.
• Reserves sit below the NOI line but inside your real cash. Lenders typically require replacement reserves (roof, HVAC, appliances, paving) per unit per year, and near-term capital items belong in the year-one budget even though they never appear in NOI.

Documents to demand before you compute anything

• A current rent roll (dated within 30 days): every unit, in-place rent, lease expiration, deposit, and which units are vacant.
• The T-12 — the trailing-twelve-month operating statement, month by month. The offering memorandum's pro forma is marketing; the T-12 and rent roll are where underwriting starts.
• The most recent tax bill and insurance policy — the two lines most often left unadjusted after a sale.
• Owner-paid utility bills (water, trash, common-area electric) and current service contracts.
• Recent capital history: roof, HVAC, plumbing — what was done, when, and what is due next.

Worked example. The numbers below are made up and rounded to teach the mechanics. This is not a real property.

• A 20-unit apartment property in Gwinnett, asking $3,400,000 — $170,000 per unit. In-place rent averages $1,450 per unit per month; estimated market rent is $1,525.
• Gross potential rent (GPR): 20 × $1,450 × 12 = $348,000 a year. The $75-per-unit gap to market is loss-to-lease of $18,000 a year — upside that exists only after the time and cost of actually raising those rents.
• Effective gross income (EGI): less 5% vacancy (−$17,400), plus $6,000 of other income (laundry, parking) = $336,600.
• Operating expenses: taxes $38,000 + insurance $18,000 + management at 5% of EGI $16,830 + utilities $14,000 + repairs $12,000 + payroll $10,000 + other administration $5,170 = $114,000 — $5,700 per unit, an expense ratio of 33.9% of EGI.
• NOI: $336,600 − $114,000 = $222,600. Cap rate at the ask: $222,600 ÷ $3,400,000 = 6.55%.
• The loan test: a 65% loan is $2,210,000; at an assumed 6.75% over 25 years, debt service is about $183,230 a year. DSCR = $222,600 ÷ $183,230 = 1.21x. Cash flow after debt is about $39,370 a year; on the 35% equity of $1,190,000, cash-on-cash is about 3.31% — before replacement reserves (illustratively $300 per unit per year = $6,000, which lenders deduct below the line).
• The lesson is the DSCR: 1.21x sits below the 1.25x floor many commercial lenders use. Working backward from 1.25x on the same loan terms, the maximum supportable loan corresponds to a purchase price of roughly $3.30 million — about $100,000 below the ask. That is how underwriting becomes a negotiation argument: not "I want it cheaper," but "at this price, your own lender's math will not fund the loan."

The five-step underwriting sequence

• Step 1 — Reconcile the rent roll against the T-12 and bank statements. Does rent on paper actually land in the account? Which units are behind, and which are rented below market to the owner's relatives?
• Step 2 — Rebuild NOI at the buyer's costs. Taxes reassessed toward the new purchase price in Georgia (see Property Tax Appeals), insurance re-quoted, and a market management fee even if you plan to self-manage. Those three lines are where NOI is inflated most.
• Step 3 — Separate in-place from stabilized. Today's income and the income after rents reach market are two different deals. The $18,000-a-year loss-to-lease in the example has value only net of the time, turnover cost, and renovation spend required to capture it.
• Step 4 — Run DSCR and break-even occupancy before you fix your price. The lender will run both; run them first, and let the lender's maximum loan discipline your offer.
• Step 5 — Budget reserves and near-term capex. Replacement reserves per unit per year, plus the roof, HVAC, and paving items due in the first years — not in NOI, but very much in your cash.

Four underwriting mistakes that cost buyers real money

• Using the seller's pro forma as NOI. Market rents not yet collected and expenses trimmed low both push value up on paper only.
• Forgetting the tax reset. In Georgia the assessed value can follow the new transaction price; the first post-closing tax bill can be materially higher than the seller's last bill.
• Counting a unit that cannot legally exist. An unpermitted conversion on the rent roll can vanish from income the moment a lender or the county reviews it — with remediation cost attached.
• Skipping the quick screens. Price per unit and gross rent multiplier (price ÷ GPR; $3,400,000 ÷ $348,000 ≈ 9.8x on the example) do not value a property, but they eliminate badly priced offerings before you spend hours on a full model.

Cho nhà đầu tư người Việt

Multifamily — bất động sản đa gia đình, từ duplex 2 căn đến khu căn hộ vài trăm căn — là bước đi tiếp theo của nhiều nhà đầu tư người Việt ở Gwinnett sau khi đã có nhà cho thuê đơn lẻ: nhiều căn dưới một mái nhà, một khoản vay, một đội quản lý. Nhưng thẩm định một khu căn hộ khác hẳn mua một căn nhà cho thuê: bạn không mua "căn nhà", bạn mua một doanh nghiệp nhỏ mà thu nhập là tiền thuê của hàng chục hộ gia đình. Từ 5 căn trở lên, tài sản được định giá theo thu nhập (NOI và cap rate) và vay theo kênh thương mại, nơi lender xét DSCR của chính tài sản.

Trong ví dụ trên trang này: khu căn hộ 20 căn ở Gwinnett chào giá $3.400.000 ($170.000/căn). Tiền thuê đang thu $1.450/căn/tháng so với thuê thị trường $1.525 — GPR $348.000/năm; trừ trống phòng 5% và cộng thu nhập khác, EGI là $336.600. Chi phí vận hành $114.000 (33,9% EGI, $5.700/căn) cho NOI $222.600 và cap rate 6,55% ở giá chào. Nhưng khoản vay 65% ở điều kiện giả định cho DSCR chỉ 1,21x — dưới mức sàn 1,25x của nhiều lender thương mại — nên giá mà toán của lender hỗ trợ chỉ khoảng $3,30M, thấp hơn giá chào khoảng $100.000. Đó là cách underwriting trở thành lập luận đàm phán. Bản tiếng Việt đầy đủ của chủ đề này có trên NhaDat Duluth: Multifamily là gì? Cách thẩm định một khu căn hộ cho thuê ở Georgia Đây là thông tin giáo dục chung, không phải tư vấn đầu tư.

Frequently asked questions

When does a multifamily property count as commercial in Georgia?

At five or more units. Properties with 5+ units are generally financed with commercial loans and valued primarily on income — NOI divided by cap rate — the way other commercial real estate is valued. Two-to-four-unit properties usually still go through residential lending channels and are valued much more heavily on comparable sales. That 4/5-unit line decides both how you borrow and how you value, so it is the first thing to establish on any deal.

What is price per unit, and why is it not enough on its own?

Price per unit is simply the price divided by the number of units — $170,000 per unit on the worked example on this page ($3,400,000 for 20 units). It is a fast comparison and screening number, nothing more: it says nothing about the rent each unit actually produces, the age and condition of the building, or the expense load. Two properties at the same price per unit can have completely different NOI. Always pair it with cap rate on a rebuilt NOI, expense per unit, and DSCR before drawing any conclusion.

Why do multifamily buyers rebuild the seller's NOI instead of using the offering number?

Because the seller's books describe the seller's operation. The three lines most often understated are property taxes (a Georgia sale can reset the assessment toward the new purchase price, so year-one taxes are rarely the seller's), insurance (often an old policy about to renew higher), and management (an owner who self-manages books little or none, while a buyer hiring a manager pays roughly 4-6% of effective gross income). Rebuilding NOI at the buyer's costs — plus a market vacancy allowance — is the core of underwriting; pricing off the offering pro forma is how buyers overpay.

What DSCR do commercial multifamily lenders usually require, and what happens below it?

Many commercial lenders use roughly 1.25x DSCR (NOI divided by annual debt service) as a floor, though the exact standard varies by lender and property. In the worked example on this page, NOI of $222,600 against about $183,230 of debt service on a 65% loan gives 1.21x — below that common floor. The lender does not reject the property; it shrinks the loan. Working backward from 1.25x on the same loan terms supports a purchase price of roughly $3.30 million — about $100,000 below the $3.4 million ask. That gap, documented, is a negotiation argument, not an opinion.

Thẩm định (underwriting) một khu căn hộ ở Georgia khác mua nhà cho thuê đơn lẻ thế nào?

Khác ở ba điểm chính. Thứ nhất, từ 5 căn trở lên, khu căn hộ được định giá theo thu nhập — NOI chia cap rate — chứ không theo giá các căn nhà comparable như bất động sản nhà ở. Thứ hai, vay từ 5 căn trở lên là vay thương mại: lender xét dòng tiền của chính tài sản (DSCR) nhiều hơn thu nhập cá nhân của người mua. Thứ ba, chi phí vận hành là một hệ thống gồm thuế, bảo hiểm, quản lý, tiện ích, sửa chữa, nhân sự — và dự phòng thay thế (reserves). Trong ví dụ trên trang này: khu 20 căn ở Gwinnett chào $3.400.000 ($170.000/căn), thuê đang thu $1.450/căn so với thuê thị trường $1.525, EGI $336.600, chi phí $114.000, NOI $222.600, cap rate 6,55%. Nhưng DSCR chỉ 1,21x — dưới mức sàn 1,25x của nhiều lender — nên ở cùng điều kiện vay, giá mà toán của lender hỗ trợ chỉ khoảng $3,30M, thấp hơn giá chào khoảng $100.000. Bản tiếng Việt đầy đủ: nhadatduluth.com — bài 'Multifamily là gì?'. Đây là thông tin giáo dục chung, không phải tư vấn đầu tư.

This page is general education, not investment, legal, tax or financial advice. Every figure in the worked example is made up and rounded to teach the mechanics; the cap rate, loan terms, expense ratio and reserve figures shown are illustrative assumptions, not market quotes for any specific property. Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 678-707-2498 · dewey.luong@serhant.com