Offering price for an Apartment

1 Reply

Hello,

I know this questions seems a little too vague, but I'm new to researching apartments and have a potential 12 unit townhouse complex grossing 100k/year.  Rent increase possibiity is there to increase gross to $120-$130k/year.  My questions is very general in that, is there a particular multiplier of gross that should be applied to the gross to get a ballpark figure.  Like say 5 times gross would translate to an offer of $500,000.  I am more familiar with independent motels.  I understand area and rent market makes a difference too.  OR is offer price based on the net?  I'm just trying to get a rule of thumb figure.  Also on BP podcast I've heard of the 50% rule, does that include the debt service?

@Raj Vajir ,

Apartments are priced off of net income (NOI) and cap rate. Value=NOI/CAP.

NOI does not include debt service but includes all other expenses (management, maintenance, taxes, insurance, capex, etc.).

50% rule states that half of your gross rents would go to expenses hence your net income would we roughly 50% of gross rents. In reality it may be more than 50% depending on the property age, occupancy, and other factors ("all bills paid" have higher expense ratio than 50%).

CAP rate is derived from comparable sales. E.g. if you have 3 similar apartments sold for 8% cap, then yours is probably 8% as well.

Hope that helps

Nick

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