Uncovering the Hidden Pitfalls of Property Analyzer's for Multifamily Real Estate

In the process of building my property analyzer, I discovered how there was a significant difference in how the numbers added up among analyzers.

It's just math, shouldn't they all add up no matter what?

You'd think, but the error that I discovered is due to most property analyzers cash flow / proforma model is on a yearly basis instead of a monthly basis like a T12.

What do I mean?

If you calculate your rent increase assumption on a yearly basis, you take the higher rent assumption and divide by 12. What this does is assumes you get the rent increase starting in month one to month 12. The reality is that this rent increase is achieved only by the end of month 12. There are usually incremental gains among the months as unit renovations are completed, etc.

The other factor is your economic vacancy assumptions. If the deal has trailing economic vacancy of 20% and you project a 8% in year one as you burn off loss to lease, etc. then this reduction assumes the 8% starts in month one vs month 12 only. Instead, it would likely reduce by 1% each month as existing leases expire.

This all in turn bases the projected sales price on on a math error. Additionally, it doesn't value deals based on how they actually are valued.

When assets are valued, the income is based on a T3 annualized basis and a T12 expenses basis. Analyzers that use a yearly basis only give the option to base the projected value on a T12 basis for both income and expenses.