ISO help valuing apartment building we want to make offer on

4 Replies

We just sold a SFR and are in the identification phase doing a 1031 exchange, so need to move quickly. There is a 16-unit property we looked at several months ago, and I want to make sure I am running the numbers correctly to value it. We have 40 doors currently - one 4-unit and the rest are duplexes, commercial property, or SFR. This is the first apartment building we have considered, so I am not confident on running valuation analysis like I am for smaller multi-families.

Here are the details - I would LOVE input from others!  

Almost all units are the same, but some tenants have been there for a long time so have lower rent than newer tenants.  Rents range from $325-465/month (crazy variation, I know....)

Here are the numbers from Sch E for 2016

rents: $73,990

cleaning: $510

insurance: $4,868

repairs: $1,364

supplies: $3,770  (the current landlord keeps a room in the basement filled with couches, beds, end tables, etc, that he allows tenants to pick from if they need such things, so I suspect this is part of this number)

taxes: $3,784

util: $10,844

Additional benefits to this property are: good location for the type of apartments; all brick building; new roof within last few years; had a fire in one unit several years ago, so all units were re-done and brought up to code by the insurance company. Current owners have maintained it very well. I do suspect it is priced a good bit above its actual value, but I want to figure out whether the value I have come up with is the same as others looking at it. I have been using a cap rate of 10, as the area where it is located has a pretty high ROI.

If any other info is needed, please let me know, and thanks for reading this far!

Erin 

Awwww - anyone have thoughts??

Is the purchase price around $4.9 million?

I would inflate variable expenses by some number to give you a cushion, and then calculate the value of the property on the new profit margins.  Also, is there any sort of management fee?

Not quite - asking price is $450k. LOL  I am coming up with about a $410k value using a 9% cap rate.  

Would loooooove thoughts on this if anyone has time.  Thanks!

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