The way of underwriting apartment building offer price

[Vincent Chen]

Hey,already learned for several months and analyzed some real deals.Still in my learning phase, after reading a lot logs and talked with different investors/brokers,just would like to discuss/clarify some important points for underwriting apartment buildings (> 6 units, income properties).

First way to underwriting apartment building is based on the actual/verified seller financial datas (income/expense) and market prevailing cap rates to get reasonable market value, then based on the physical (rehab costs) condition to get the offer price.

Another way is my prefer and most value-based methodology.First of all, based on the market research to come to your own expense (property manger expense, insurances,taxes,cap expenditure sand utilities) and based on the market condition to come at rents or other income numbers, to get your own NOI and cash flow.

Then base on the value-play plan (financial terms and holding period) and (most importantly) IRR target for the property.Use the expected cash flow,IRR,holding period and expected exit price to get the offer price.

Just wonder which way is better from the value-add investing perspective?And if it is the second way, how do you to determine IRR target?

Already read a lot of blogs of Brain Burke and understood that value add might be limited by a lot of factors, just would like to know what is the best offer price strategy to make sure you can buy right and have reasonable exit strategy?

Thank you for all the experienced or new apartment building investor to comment and inform.

Thank you a lot