Assessing value of apartment building???

Question

Im interested in investing in apartment buildings. How do you assess the value of an apartment building? Does the potential rental income have a baring on the value? Can I get a good estimation of values from zillow or the county appraisers site? Thanks in advance for any help you guys can offer.

Dale Osborn · Answer

Lex Dixon for a quick calculation for apartment value if building is old use .40 or if not too old (under 10 years old) then use .50. Take your gross income from the property and multiply it by the above numbers. This will give you a rough idea of what the Net Operating Income (NOI) should be for the property. Divide the NOI by the interest rate you expect to earn from the building and that is the max price to offer. 
Example: If you want a 12% return

NOI/.12 = Max offer price.

Hope this helps you out.

Lex Dixon · Answer

Thank you for all the replies and the formula. Still learning how to navigate through the older posts on BP. Your comments definitely helped....Just general info, obviously I'm a newbie. I'm interested in multifamily properties, somewhere in the 5-10 unit range. Been reading a lot of articles and blogs. Was going to ask about any good books in reference to this, thanks for your post Nate. I have come across a few properties that I'm interested in, but obviously I have more learning to do. Thanks again.

Nate Gelinas · Answer

Hey Lex welcome to BP.

First off, the way your question is presented would lead one to believe that you might want to pick up a little more savvy on the topic before delving into it.

Just like you, I too am interested in getting into multifamily. I would suggest reading "What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures". I just read it last month, and it is a MUST read for understanding the metrics used in income producing property analysis.

Steve Babiak · Answer

Take Dale Osborn's formula and subtract the projected costs of repairs needed to get max offer amount.  Start your offer lower than that of course ...

Joel Owens · Answer

"I'm interested in investing in apartment buildings."

Can you clarify that more??

I hear apartment buildings and some people think duplex,tri-plex,quad.

I define it as 5 or more units for commercial purposes that will use the income approach as compared to the comparable sales approach and commercial financing versus traditional lending.

Each size of building and units will have various things to analyze.

You first need to define how much money you have to actually get started and that will determine to an extent what size you start out with among many other factors.

Kyle J. · Answer

Yes, the rental income factors into the purchase price.  But don't pay based on future/potential rental income.  Pay based on current income.  For instance, if an apartment complex is 50% occupied, then use that percentage.  Don't let the owner/seller convince you to pay a higher price based on pro-forma numbers like what the income COULD be if it were 100% occupied.  Why should the seller benefit from the work you'll have to do in order to get it 100% occupied?

And no, you cannot get a good valuation on an apartment complex from Zillow or the county appraiser.  They just won't have the information needed for you to value it.  In fact, I've found that most apartment complexes I've researched aren't even on Zillow.

See this blog post for more detailed info: http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/

Assessing value of apartment building???

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