Welcome to The Bounce Method Podcast! I'm J.D. Allen, and today, I'm revealing the "B" in our Bounce Method: buying at the right price. This is crucial for early-stage investors focusing on Class C properties in tertiary markets. My golden rule? We don't buy on pro formas; we buy on actuals. Pro formas are speculative, optimistic guesses, while actuals are the real, historical numbers. Paying for a property based on potential means you're paying the seller for work you still have to do. I've learned that valuing multifamily properties is fundamentally different from single-family homes; it's all about the income the property actually generates, not just comparable sales of houses down the street. I also emphasize the importance of scrutinizing expenses, avoiding FOMO, and being realistic about growth in tertiary markets.
My two key takeaways:
Always base your real estate offers on a property's "actuals" (historical income and expenses) rather than speculative "pro forma" projections, as relying on future potential means paying for unachieved results and increases the risk of overpaying.
Multifamily property valuation (5+ units) is driven by the income approach (Net Operating Income and market cap rates), not primarily by comparable residential sales, requiring a keen focus on current income production and realistic expense analysis, especially in less liquid tertiary markets.
Are you truly analyzing your next deal based on cold, hard facts, or are you letting optimistic projections cloud your judgment?