Top 8 Factors to Determine an Apartment Buildings Value?
Updated: Sep 28, 2022
How do I determine your property's value? There are numerous factors that go into pricing a building. Balancing it all out is a skill honed over many years. This is a glimpse into what I look at when pricing properties.
1. TYPE OF PROPERTY
I like to group properties into four categories 1. Pride of Ownership 2. Turnkey 3. Value Add 4. Heavy Fixer. Depending on where your property falls I pull sales comparables that are similar to your building and help me determine a price point. Click here to read more about How & Why Buildings Are Categorized.
2. CURRENT & PRO FORMA INCOME
What is the current income of the property? Are most or all tenants paying below-market rents? Are there any vacancies? Are there any vacancies? Is there an upside in rents? These are all important questions that determine other factors like the GRM and CAP Rate which identify the profitability and rate of return on the property and are important numbers Buyers look at when purchasing.
3. GRM - GROSS RENT MULTIPLIER
GRM + How many times the annual income can be divided into the price. The lower the GRM, the better the deal. Higher GRMs means less cash flow for the Buyer. Sales Price/Gross Annual Income = GRM
4. CAP RATE
The Capitalization Rate measures the rate of return and is calculated by dividing the net income into the price. The higher the Cap Rate, the better the deal.
Net Operating Income (NOI)/Sales Price = CAP Rate
5. PRICE PER UNIT
Unit size, unit mix, condition, location, year built, rents, and more contribute to the $/unit. If similar buildings have sold at an average of $250,000/unit, then that gives you a good starting point to determine value.
6. PRICE PER SF
Larger units usually sell for lower $/SF, and Buyers will pay a higher $/SF for smaller units because they're often paying a lower $/unit. A remodeled, newer, or well-located building will also command a higher $/SF.
7. SALES COMPARABLES
What has recently been sold in the immediate area and what's for sale? Sales comparables are also a big part of what appraisers will use, so it's integral to take them into consideration.
8. FINANCING OPTIONS
Vacant units, low-income, non-paying tenants, etc. can prevent traditional financing. This can affect the price as you will have a smaller buyer pool.
Ultimately each property is unique, all the factors mentioned above plus market conditions, time of year, and inventory all play an important role in pricing your property.
If you are interested or thinking about Selling I offer FREE market evaluations on all property types!
Call me at (310) 562-9630 or Email Dana@IncomePropertiesLA.com