The Best Way To Value Your Multi-Unit Property

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 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 that 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 we at PRS PROPERTIES CAN DO. We can discuss with you the current rents in your area and supply you with comparable rental prices for similar properties. Before you hire a manager, make sure the compensation is fair to you! We can also look at your building for changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.

Remember – KNOWLEDGE IS POWER!