How to calculate ARV for apartments?

Question

I’m looking at apartments in Cleveland, OH and I’m trying to calculate ARV for apartment buildings, but everything that has been sold lately is not renovated.  If there is a commercial realtor in this area that could help me I would appreciate it.

David Almeida · Answer

Since there are no comps, it will be valued based on cash flow—or net operating income. If it's in a less desirable area there will likely be a discount required. So definitely contact a local broker who specializes in apartments.

Cory Carlson · Answer

@Maurice Lightner

A “value add” apartment lies in the numbers. However necessary raise rents/income (could be initiating rubs/laundry, storage) and lowering expenses. But going in thinking counter tops and some fresh paint makes It worth more is not the approach. Its not a home that someone buys because it’s nice and they want it - it is worth as much money as it makes.  For evaluating approximate value is based on ACTUALS not pro forma and using comparable CAPS in the area. For example maybe similar sized apartments go for a 6 cap and yours is fully updated so you may list at 5.5 cap

Josh Taylor · Answer

I was told they also use actual comps of other like size apartments to compare to along with NOI too. Not sure though. Still learning

Tj Hines · Answer

@Maurice Lightner if you're looking at deals of 5+ units then ARV is irrelevant. The value lies in the NOI. Not sure what size or how many units you're talking here

Josh Taylor · Answer

I believe its by lowering expenses and fixing the property up to be able to raise rents, which will essentially raise NOI, making the property worth more.

Maurice Lightner · Answer

@Christopher Giannino

Thanks for responding. I was using NOI to make sure the numbers work, but I also want to see how I can evaluate a property after I rehab it if I wanted to refinance with a bank or sell it within 2-3 years.

Christopher Giannino · Answer

@Maurice Lightner

I might be confused here so take my response with a grain of salt but isn't multifamily apartment buildings (5 unit+) valued based on NOI?

Or did you mean you can't find comps for what the potential rent will be once the units are renovated?

Vladimir Nemchinov · Answer

Hey are you talking commercial or under 5 units?

How to calculate ARV for apartments?

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