How to Analyze a Multifamily or Commercial Real Estate Deal in Under 15 Minutes
You can't start fresh with every OM. You need a first-pass filter that eliminates deals on fundamentals before you invest serious time or capital. Here is the 6-step triage framework Marss uses to screen income-producing properties.
What This Framework Covers
This is a screening framework for income-producing properties with tenants — multifamily (5+ units), retail, office, industrial, and mixed-use. It is designed for first-pass triage: identify whether a deal clears your hard gates before you spend time on site visits, third-party reports, or full underwriting models.
Calculate Trailing 12-Month NOI
Start with the T-12 financials. Net Operating Income = Gross Rental Income (actual collected, not pro forma) minus Vacancy (actual, not market assumption) minus Operating Expenses (taxes, insurance, maintenance, management, utilities). Do NOT use projected rents or pro forma occupancy for your baseline NOI. If the broker is quoting you a "stabilized" or "market" NOI that is higher than trailing actuals, flag it — the trailing number is your underwriting anchor.
Require T-12 actuals and reconcile to bank deposit statements. If the seller cannot provide bank statements, pass.
Validate the Entry Cap Rate
Entry Cap Rate = Trailing NOI ÷ Asking Price. Your minimum: 6.0% on verified trailing NOI. A 6% cap rate means the property produces $1 of NOI for every $16.70 of purchase price. Below 6%, you are depending on future rent growth or cost reductions to justify the price — that is a bet, not a buy. Calculate both the in-place cap rate (trailing NOI) and the broker-quoted cap rate. If they differ by more than 50–75 basis points, ask for the reconciliation.
Entry cap rate < 6.0% on verified T-12 NOI = conditional or pass, unless there is a documented, near-term path to 6.0%+.
Stress NOI at -10% and -20%
Apply two revenue shocks before you run any return metrics. Stress 1: NOI × 0.90 — vacancy up 500 bps or rents down 5%. Stress 2: NOI × 0.80 — vacancy up 1,000 bps or rents down 10%. Now re-run DSCR and cash-on-cash return at both stress scenarios. A deal that only works at full occupancy and market rents is fragile. A deal that works at -20% NOI has real margin of safety.
If the deal does not produce positive cash flow after debt service at -10% NOI, it does not pass without a compelling value-add thesis backed by executed leases.
Calculate DSCR
DSCR = NOI ÷ Annual Debt Service. Use your actual proposed loan terms — not broker assumptions. If you do not have terms yet, use a conservative proxy: 7.25% rate, 25-year amortization, 65% LTV. Target: 1.40x at baseline NOI. Floor: 1.20x at -10% stress. Seller carry payments and any subordinate debt should NEVER count toward NOI in your DSCR calculation — senior debt service is covered only by operating NOI.
DSCR < 1.20x at -10% stress scenario = pass unless seller carry is structured to subordinate below senior debt with income-contingent terms.
Benchmark Against the Market
Pull comp cap rates for the submarket. If your entry cap rate is at or below market, you have no valuation cushion. Check: average market occupancy vs. subject property, rent/SF vs. comparable properties, expense ratio vs. market norms (expense ratios above 50% of EGI for multifamily or 40% for NNN-adjacent retail are red flags), and supply pipeline — new inventory within 1 mile under construction.
If the subject property is occupancy-lagging the market by 500+ bps without a documented operational reason, investigate before proceeding.
Go / No-Go Decision
- • Cap rate ≥ 6.0% on T-12 NOI
- • DSCR ≥ 1.40x baseline
- • DSCR ≥ 1.20x at -10% stress
- • T-12 reconciles to bank statements
- • At or below market cap rate
- • Cap rate 5.5–5.9% with clear value-add
- • DSCR 1.25–1.39x baseline
- • Occupancy below market by 300–500 bps
- • Missing one financial document
- • Expense ratio slightly elevated
- • Cap rate < 5.5% with no value-add
- • DSCR < 1.20x at -10% stress
- • T-12 doesn't reconcile to deposits
- • No bank statements available
- • Occupancy 500+ bps below market
Red Flags That Auto-Fail a Deal
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