What is the best way to value apartments and multi-unit properties?

There are a number of ways to determine the value of a multi unit property. They are all subjective, so you will want to compare them, but you can learn from each. Here are some popular methods:

GROSS RENT MULTIPLIER This method divides the sale price by the the gross scheduled income before expenses. It is simple to compute, but, without expenses, is far from a complete picture.

CAPITALIZATION RATE Here we divide the net operating income , after expenses, by the price. We can then compare the rate of similar properties to determine value and profitability. Of course if income or expenses are abnormal for the particular property, the number could be misleading.

INTERNAL RATE OF RETURN This method allows us to compute the rate of return over a specified period of time assuming a certain cash flow. Usually it is a computation you would consider when purchasing. It involves a rate which is projected based on future income and sale price

MARKET VALUE COMPARISON This is a traditional approach to placing value on real estate by comparing similar properties close to the subject property. Such things as income, expenses and building condition, and quality of management can severely affect these numbers in a multi unit building.

There are, of course, other ways to determine value such as replacement value, cost per square foot and cost per unit. Each one has its strengths and drawbacks, so it is important to look at your building in different ways.

When I am purchasing, I like to look at a property with an idea of how I would run it and what changes I would make, keeping in mind the present situation and the cost and difficulty of making those changes .

What PRS PROPERTIES CAN do for you is give you a good idea what your property is worth in the current market. We can suggest changes that you can make that would increase the value of the building beyond the cost of repairs. Is there a chance to raise rents?

We can do a rent survey to help you understand rental values in the area. Remember, we are apartment owners too! We have investors looking and quite often, we can put together an offer without a listing. Last Friday we  closed on an 8 unit building in Long Beach which was never listed and owned by the same person for 37 years.

We also sold that same seller’s last Long Beach building the same way over 20 years earlier. Any questions? Give Steve a call anytime.