How Do I Comp A 32 Unit Apartment Complex

Question

What information do I need to comp an apartment complex in the Houston area to make it a good deal?

Gerardo Waisbaum · Answer

When it comes to investing in multifamily properties, it can be difficult to compare the value of different properties. This is because no two properties are exactly alike - they may have different numbers of units, unit mixes, amenities, vintages, or classes. As a result, it's impossible to simply look at the price of a property and determine whether it's a good investment or not.

This is where the capitalization rate, or cap rate, comes in. By using the cap rate as a unified metric, you can compare the values of different properties. The market cap rate tells you what level of performance investors are looking for in a specific market. Cap rate = NOI / Property Value so to calculate the property value using the cap rate, you need to know the property's net operating income (NOI) and the market cap rate. The market cap rate can be obtained through various sources, such as brokers or CoStar reports.

Konstantin Ginzburg · Answer

A 32 unit apartment complex counts as a commercial property (any multiunit over 4 units is considered commercial as opposed to residential property). As a result, comps are not required to price this property and is instead priced based off of capitalization rates for commercial multifamily units in that area. Once you determine the capitalization rate of the market, you can determine the correct price of the apartment complex based off of the net revenue the property is currently generating.

Cody L. · Answer

I buy a lot in Houston. What I do when someone sends me a deal1) How much am I paying per door vs. others that I've bought (or have been sold) in that submarket2) How much am I paying per $ of rent vs. others (keep it simple:  When you're buying an apartment, what you're really buying is a rent roll)3) If it's being sold for more per door or more per $ of rent vs. others in that area, is there something that might justify that increase.  i.e., maybe it's 1/2 empty due to poor management.  In that case, if it's making 20% less rent per $ of purchase price, but you can easily double the rent, then you're getting a good stabilized rent roll per $ spent4) What other items should you look at to take away or add to your offer.  i.e., same price per door and rent, but building has tons of work needed?  Or units are filled with section 8 or other voucher tenants?   In some cases you might pay more per $ of rent if the building is nice and brings in a lot of $ per unit (i.e., I might pay $300k for $3k/month units, but that doesn't mean I'll pay $80k for $800/month units).

Or reach out to people you know/trust in the market and see what they think about the deal.  Most people that are active can analyze a 32 unit in their sleep.  Or if they're in that market they'll know who bought it, when they bought it, how much they bought it for, what the ones next door traded for etc.

Andrew Syrios · Answer

You're not going to find a 32-unit apartment to compare it too in all likelihood so with apartments you're looking for relatively similar nearby apartments (say 20 to 60 units) and compare the cap rates between them. (For more on cap rates and other financial metrics, you can see here: https://www.biggerpockets.com/...)

Chris Seveney · Answer

@Carl Desert

Many ways to do an initial pricing like others mentioned price per unit or cap rate. But final pricing needs to be done based off extensive due diligence and a building study report to understand the condition of property and deferred maintenance to get a better understanding of the true value.

If you have never managed or owned commercial properties a 32 unit is not where I would start.

Justin Moy · Answer

You can price this based on cap rate (NOI / cap rate) if it is stabilized, if it is value add or distressed that won't work though.

You can price it on a per unit basis compared to other apartment complexes that have sold in the area with similar size, layouts, and rents.

You can price it compared to another stabilized renovated asset and deduct the per unit cost of renovations from that comp minus a little extra for you taking on the risk and work of completing the work.

How Do I Comp A 32 Unit Apartment Complex

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