How to Underwrite a Multifamily Wholesale Deal: Start With NOI, Not a Single-Family Formula

One of the fastest ways to misprice an apartment deal is to force it into a single-family flip formula.

Multifamily value is driven heavily by income.

That means the end buyer is usually asking a different question from a house flipper: "What NOI can this property realistically produce, and what is that income stream worth?"

If you are wholesaling multifamily, you need to understand that buyer’s math.

Step 1: Build gross potential rent

Start with the rent roll.

If there are 20 units averaging $1,200 per month:

20 x $1,200 x 12 = $288,000 annual gross potential rent.

Do not stop there.

Step 2: Subtract vacancy and credit loss

A property is not 100% occupied and 100% collected forever.

If you use 7% vacancy and credit loss:

$288,000 x 7% = $20,160.

Then add other recurring income such as parking, laundry, storage, utility reimbursements, pet fees, or other legitimate operating revenue.

This gives you effective gross income.

Step 3: Rebuild operating expenses

Do not blindly accept the seller’s expense statement.

Normalize:

Then calculate:

Step 4: Translate NOI into value

If stabilized NOI is $180,000 and the buyer requires a 7.0% cap rate:

$180,000 / 0.07 = approximately $2,571,429.

That is the end buyer’s approximate stabilized value before considering capex, financing, timing, and risk.

Step 5: Subtract the value-add work

Suppose the asset needs $150,000 in unit renovations and deferred maintenance.

Suppose stabilization takes 12 months.

A simple wholesale model might also account for lost or reduced NOI during the turnaround. If current monthly NOI is $12,000 and the repositioning temporarily consumes six months of that economics, that is real carrying risk.

Then subtract your desired wholesale fee.

The conceptual formula is:

The exact components depend on the buyer.

Debt service matters even if you are not the end buyer

A multifamily buyer may be constrained by DSCR.

If the lender needs 1.25x DSCR, then the NOI has to support the loan.

That can reduce the amount the buyer can borrow and increase the equity required at closing. A deal that looked great at an 8% cap might be harder to finance at current rates.

As a wholesaler, understanding that helps you price the deal for the actual market.

Cash-on-cash tells you whether the equity is working

The buyer’s initial cash includes more than down payment. It can include closing costs, loan fees, capex, and operating reserves.

If your deal package claims a 14% cash-on-cash return but ignores a $200,000 renovation reserve, sophisticated buyers will stop trusting the rest of your numbers.

A good wholesaler does not sell a fantasy

Your goal is not to make the pro forma look as good as possible.

Your goal is to make the opportunity easy to evaluate.

Provide current operations, your assumptions, and the path to stabilization. If the upside requires increasing rents, show the current rent, target rent, evidence, turnover cost, timing, and lease-up assumptions.

A buyer can disagree with your assumptions. That is fine.

The fastest way to build a repeat buyer list is to be the person whose numbers are worth opening.

Current NOI and pro forma NOI are two different products

A clean multifamily package should show both.

Current NOI tells the buyer what the property is producing under today’s rent roll and expenses. Pro forma NOI tells the buyer what you believe the property can produce after specific changes.

Do not blend the two.

If current rents are $1,000 and market rents appear to be $1,250, show the gap. Then explain the work required to capture it: lease expirations, renovations, tenant turnover, concessions, marketing, and time. If five units are delinquent, do not call them fully occupied just because the rent roll shows names in the units.

The more precise you are about the bridge from current to stabilized NOI, the more credible the opportunity becomes.

Underwrite the buyer’s refinance

Many value-add apartment buyers plan to improve NOI and refinance. That means your deal is partly constrained by what a future lender will fund.

If stabilized NOI is $250,000 and a future loan has $180,000 of annual debt service, DSCR is 1.39x. If rates rise and debt service becomes $210,000, DSCR drops to 1.19x. The property may still be valuable, but the refinance proceeds could be lower than expected.

A wholesaler who understands this can have better conversations with sophisticated buyers and can avoid pricing every deal as if the future capital market will be perfect.