The Tony Stephan Show · Episode #019

How Much Can I Pay For This 17 Unit Apartment? (Multifamily Underwriting)

With Tony Stephan · May 2, 2026 · 12 min

A husband and wife in Tony's one on one coaching, both registered nurses from South Carolina, used to invest passively in syndications. After reading Tony's book and finding his channel, they wanted to be active investors in the Midwest. They sent Tony a 17 unit they were underwriting, and he reviews their work on screen with the private details hidden.

The seller is asking about $950,000 and there is possible seller financing, but Tony underwrites it as a bank deal: 30% down, a 25 year amortization, 3% closing costs and an 8.5% cap rate. Fifteen units are studios and two are one bedrooms. Some studios rent for $600 against a market of about $850, so income could go from about $126,000 to about $174,000.

Tony praises the clients for calling the tax assessor, getting a range of $14,000 to $28,000 and underwriting $22,000. He points out the seller's odd expenses, such as $100 a year for lawn care and one time repairs booked as maintenance, and shows how those lowered the value. At a 52% expense ratio the building is worth about $415,000 as is. Even with the upside at about $1.38 million, he would pass at $950,000 and explains why seller financing is sometimes a warning sign.

Watch the full episode · Watch on YouTube

Key takeaways

1. Underwrite as a bank deal even if seller financing is on the table: 30% down, realistic rates and closing costs.
2. Call the tax assessor yourself. Taxes and insurance are fixed costs you cannot outmanage.
3. Trust but verify. $100 a year for lawn care is not real, and one time repairs belong in CapEx, not maintenance.
4. Studios are fine in a great location. In the middle of nowhere, be more careful.
5. Do not reward the seller for the work you will have to do. Pay close to today's value, not the upside.
6. Seller financing can be offered because a bank would not finance the deal. Education beats no money down promises.

Chapters

1. 0:00 Intro
2. 0:36 Deal Overview: 17 Units
3. 1:50 Assumptions: Vacancy, Management, Taxes
4. 3:21 The Rent Upside
5. 4:24 Expenses Breakdown
6. 6:02 Bad Operator Mistakes
7. 8:39 Deal Numbers and NOI
8. 9:19 Not Worth the Asking Price
9. 10:34 Final Verdict

FAQ

Who sent Tony this deal?

A husband and wife in his one on one coaching program, both registered nurses from South Carolina. They had invested in syndications before and wanted to become active investors in the Midwest after reading Tony's book.

What is the rent upside?

Of the 17 units, 15 are studios and two are one bedrooms. Some studios rent for $600 against a market of about $850, and the one bedrooms are at $850 against about $900. Income could rise from about $126,000 a year to about $174,000.

What is the building worth today?

Using income minus expenses at a 52% expense ratio and an 8.5% cap rate, Tony's as is value is about $415,000. The seller is asking about $950,000. He thinks the upside might reach about $1.38 million after the work is done.

Why does Tony say seller financing can be a warning sign?

If a property were in a great area and performing well, the seller would not need to offer financing. Here he thinks a bank would not lend the full amount on the current numbers. He says real estate is an educated game, not a no money down game.

Underwriting a 17 Unit: Is Seller Financing a Red Flag?

From syndications to an active deal

This deal came from a husband and wife in Tony's one on one coaching program. Both are registered nurses from South Carolina. They had invested passively in syndications, then read Tony's book, found his channel and decided they wanted to get into the active game in the Midwest. They underwrote this deal themselves and sent it to Tony, who hides anything proprietary and reviews it on screen.

The setup

It is a 17 unit, and the seller was asking about $950,000. There is possible seller financing, but Tony underwrites it as a bank deal with 30% down, because rates at a bank are around 6.5% to 7%. That makes the down payment about $285,000 and the loan about $665,000, with a 25 year amortization. He explains that a first time borrower without experience or a mentor might only get 20 years, which raises the payment. He adds 3% for closing costs and tells the clients to use an 8.5% cap rate for this market.

The assumptions are standard: 5% vacancy and bad debt even at full occupancy, a 5% management fee because the bank will apply it, and modest growth in repairs. In Michigan, property taxes uncap the year after a sale and then can rise at most 5% a year.

The rents

Fifteen of the units are studios and two are one bedrooms. Tony says studios are fine in a great location but worry him in the middle of nowhere. Some studios rent for $600 when market is about $850; the one bedrooms are at $850 against about $900. From the T12, the property makes about $126,000 a year, with the opportunity to reach about $174,000. The clients also added pet fees, admin and common area fees and a utility bill back plan.

Expenses and bad operators

The clients called the tax assessor, which is exactly what Tony teaches. The assessor gave a range of $14,000 to $28,000, and they underwrote $22,000, right in the middle. "You can't outmanage a high tax bill. You can't outmanage insurance," Tony says.

The property is owned by a syndication group, and the expenses show it. There is about $850 a year for a telephone and computer on a 17 unit. The P&L shows $100 a year for lawn care, which Tony says is not real. Payroll and workers comp appear on a property this small. Some items look like one time repairs, such as an HVAC or furnace replacement, which should be CapEx, not repairs and maintenance. At the seller's cap rate, those misplaced expenses cut about $67,000 from the value. This is why Tony likes buying from syndicators, third party managers and weak operators.

Not worth the price

With all expenses in, the expense ratio is about 52%, high for a 17 unit. Income minus expenses gives the NOI, and at an 8.5% cap rate the building is worth about $415,000 as is. The seller wants about $950,000. After the work, it might be worth about $1.38 million. "I'm not going to reward the seller for all this hard work I have to do," Tony says. He thinks something closer to $600,000 would make sense, and he would run a future refinance at only 60% leverage because rates could rise.

A word on seller financing

"Look who offers you seller finance," Tony says. A property in a great area that performs well does not need to offer it. Sellers offer financing when a bank will not lend on the property. He warns against people who teach buying real estate with no money: "This is not a no money down game. This is an educated, sophisticated game."

His verdict is to pass, and he praises his clients for being strong underwriters. The next step on any deal they buy, he adds, is operating it to actually produce the returns on the spreadsheet.

Transcript

0:00 All right, so multifamily underwriting here. This is a deal one of my one-on-one coaching clients had sent me husband wife team awesome couple. They're registered nurses from South Carolina looking to invest in the Midwest. They were syndicators what they invested in syndications and then they read my book they found my YouTube and they're like dude I want to get in the active game. So I hid everything on here that would be proprietary to the deal they were looking at but I really want to break this down for you and how this all works. So this is like our deal analyzer. This is what I use. There's a lot of very complicated tools out there. I like to keep it stupidly simple. So we're looking at 17 units $35,000 price per door at the price now. What we always do is we underwrite to what the seller is asking for.

0:46 I believe the seller was asking 950,000 here. We always put 30% down. There is possible seller financing here. So I always underwrite to 30% down in today's market. Why? Because interest rates are 6 and a half if you're going to a bank 7%. He was my client was looking at seller financing but we're going to underwrite this as a bank deal. Okay? Shows us our down payment is 285,000. Our loan amount 665,000. Amortization is 25 years. I believe that's pretty achievable if you're a good borrower. If you're a first time borrower you don't have experience you don't have a mentor you can help get you the best loans. You might be looking at a 20-year am which isn't all it does is as you see you're making you're making your payments as if your loan is spread out over less time. So your debt service goes up. Monthly mortgage annual mortgage closing costs I always underwrite to 3% for banks and credit unions.

1:37 If you do Freddie Fannie it's going to be much higher. Total equity contribution 313,500 dollars for a 17 unit deal 555,882 bucks. This is in our market so I told him to underwrite to an 8 and a half percent cap rate. Okay? We're going to take our basic assumptions vacancy and bad debt. Even if the deal is 100% full we're going to go to a 5% vacancy property management even if you're going to manage the deal yourself the bank is going to apply a 5% property management fee so we're going to do that. Repairs and maintenance 2% growth year-over-year I'd maybe use 3% inflation maybe 4% it depends. Tax increase the beautiful thing about investing in the state of Michigan is property taxes once it's sold can only go up 5% a year after it uncaps right? So the year after it sells.

2:23 So if this deal sold in 2026 it would uncap in 2027 and then 2028 20 2028 this should say 2029. And then 2030 it can only go up no max no more than 5%. Okay? Here's our gross income. So there's some definite rent delta here. Here's our rent roll breakdown. There are 17 total units 16 15 are studios two are one bed one bath. People ask me all the time what do you think about studios? You know of course obviously you want to try to get two bed units. It's like I had a client who bought a deal with four bed units right? That's great because you just have more flexibility. Studios aren't bad if they're in a great location like a studio is in you know downtown Birmingham Michigan which is a great area I'm not concerned.

3:16 If it's in the middle of nowhere I'm a little concerned. So you see we have some good rent delta here some $600 rents when rent should be 850. The one bed one bath 850 market rate 900 I agree with that. And people like where can you get $900 rents for? Dude this is the Midwest. This is what is what you get. This is why it's very the Midwest is extremely affordable for new investors to get into. So should he do this deal? Okay? That's the kind of the breakdown. So let's see. This is directly so we pull all the current information off the T12. They're making 126,000. We have opportunity to get up to 174,000 it's huge. They have a month to month charge pet fees so he underwrote to that.

4:02 Good late fees we always run three to we run closer to five to 10% on late fees so he was pretty conservative there. He didn't pull any of those over that's fine. Utility reimbursement we're very big on the rubs system ratio utility bill back so that's a huge area of opportunity to make more money. Admin fees cam fees great. All right so let's look at the expenses insurance 9,000. So he underwrote to 5% on that. Good. Property taxes he called the tax assessor which is what I teach all my clients and students to do. Dude go call the tax assessor. It's your investment. You have to be able to understand like where your taxes are going. Like I would not ever just trust a broker on it. I'm going to go underwrite it call the tax assessor. Property taxes and insurance are the two biggest variables that will kill a deal because they're what's called fixed costs.

4:51 You can't change you can't outmanage a high tax bill. You can't outmanage insurance. Insurance is very high nowadays. Insurance companies have really you know increased premiums on multifamily because of you know just the risk associated with multifamily right? For from an insurance perspective from an insurance perspective. So that is that. Let's see what else here. Let's see what else. Repairs and maintenance I always underwrite to about 500 bucks a unit so he's there. Maybe even go a little bit higher. This is all just an estimation. Okay so he did he went higher. All right good deal. Utilities as we said we're going to work to build those back via rubs system huge very commonplace.

5:40 Telephone computers yes so he see he put a note so see I teach all my clients like hey put notes and I'll review it for you. And but like see look how good of an underwriter he is right? So assessor told me 14,000 to 28,000 so he underwrote to 22,000 kind of like right in the middle smart. So he's smart. He's been taught what to do what to look for. You don't need a computer on a 17 unit. This is through a syndication so like a syndication group owns this. So yeah they're taking this is why I always teach you guys like you want to buy from syndicators you want to buy from third party management you want to buy from crappy operators because look dude they're killing their NOI here. Not killing it but they're impacting negatively impacting their NOI with 80 852 bucks a year in computer.

6:29 Bro you don't have a telephone on a 17 unit? The smallest property I have an office on is 42 units but it's in a really nice location. So we do that. Okay this Oh okay so perfect. See check this out. So I really teach all my clients but I'm teaching you too watching this. You got to inspect what you expect and you got you have to trust but verify. So on their profit and loss statement they said $100 for lawn. I mean come on. Right? Who can you get that's just not right. I don't even need to ask you guys who can you get to cut your you can't even get the kid in the neighborhood to cut the grass for 100 bucks a year right? This is a year. So he underwrote to 4,000 I think that's fine.

7:17 So these are the things you're looking out for just things that are like dude this doesn't make sense right? Reserves you always have to underwrite to 250 a unit for the bank. Property management workers comp see look they're banging $6,000 to whoops to a 17 unit for property management dude you can't do that. But here's management fees. Good my client added in the 5%. So they're charging 12,000 for management fees. My client's only going to underwrite to 9,000 because he doesn't have payroll. He doesn't have workman's comp health insurance. He doesn't have all that. Marketing yes. Plumbing supplies so this maybe should have been CapEx. If it's a one if it's a one-time HVAC repair this should have been CapEx. So again these are very maybe unsophisticated operators who are killing their NOI.

8:06 Look at how much they're killing their NOI. So they literally have this which probably should if it's a one-time like furnace replacement that's CapEx. That's not repairs and maintenance. They have this and this. So that's a year divided by what we say this is a point 085 cap? They reduced their valuation by 67,000 dollars by putting in expenses that shouldn't be there. Guys this is why you have to understand underwriting. You have to understand management operations. This is how you make your money. So I would still run if I was my client I would still run this. Puts this at a 52% expense ratio. Turnover cost all depends right? Turnovers are mainly CapEx if you are like replacing units things like that.

8:56 So this is our expense ratio very standard. Small apartments typically run 30 to 50% expense ratio. This is a little high for a 17 unit but it is what it is. The deal is worth as is income minus expenses equals net operating income. Net operating income divided by cap rate is 415,000 dollars. They're asking 950,000 dollars. Would you do this deal? No absolutely not would I do this deal. With the upside maybe only able to get to 1.37 1.38 maybe but man I'm not going to reward the seller for all this hard work I have to do. Now I know this is actually less than they paid for it so I understand them doing this. So this is when all you cool cats and kittens out there shout out to Tiger King.

9:47 When you guys are like I want seller finance. I want seller finance. Look who offers you seller finance a property that needs to offer you seller finance. If this was in a great area and if this was performing well there would be no need to offer seller finance. They offer seller finance because it's not financeable. You're not going to go get a loan for $665,000 on this deal. You're not. That's why when like you guys are just you listen to the wrong people. You listen to people who are trying to teach people with no money how to go buy real estate. This is not a no money down game. This is an educated sophisticated game. You got to learn the game. This deal's not worth 950,000. Now, maybe it could be worth 1.38 million, maybe, but I'm not going to pay them I'm not going to reward them for all the work I have to do.

10:33 That's why if you remember originally, I was like, "Dude, maybe 600,000. Maybe if we did a cash out refinance at 1.38 million, I would definitely run it at 60% leverage cuz interest rates could go up. We don't know. You know, you'd be pulling a decent chunk of money out there, but I to me, I'm not excited by this deal. I would pass. What would you do? Let me know. Also, if you enjoyed this and you want this deal analyzer, it'll be in the link in the description. It's normally 29 bucks. Just type in the code investor and you can get it for half off. This is the tool I use with all my clients. If you want to learn underwriting, practice underwriting, this is the best tool I've ever used. That's why I created it. So, you can grab it. If you enjoyed the video, let me know. Put a comment in the comment section. If you have questions, let me know. You guys have been asking me for more granular education type videos. So, here you go. Shout out to my freaking clients for being master underwriters.

11:21 I love seeing this. This gets me excited when other people learn how to do the game. If you want my help to learn how to do this and then most importantly, if you buy this deal, great. Now the work begins. Now you have to go operate it to produce this level of return. Click the link in the description to apply for the mentorship program. If you enjoyed the content, put it in the comment section. If you hated it, put it in the comment section cuz I do these videos to help you guys. Till next time, we'll talk soon. Thanks.

Topics: Deal Review, Underwriting, 10+ Units, Seller Financing, Out of State

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