How to find out how much your property is worth
There are 4 value indicators to determine the value of a 5+ unit apartment building, including:
Price per unit
Price per square foot
Gross Rent Multiplier (GRM) - The ratio of gross annualized rent to the price
Capitalization Rate (Cap Rate) - The ratio of the net operating income to the price
By taking a look at 3-5 comps in the subject property’s neighborhood you will see what those properties are selling for in each of these categories. You can find a rough value of your building by averaging each value indicator from the comparable says, and apply those values to your property. You will have 4 different values based on each value indicator. Since your 5+ unit apartment building is an income property, you can use GRM and Cap Rate to account for 60% of the value, and the price per square foot and price per unit to equate for 40% of the value (instead of 25% for each).
Example:
A neighborhood typically sells for a 17 GRM, 3% Cap Rate, $360/sqft and $506,000 per unit.
Your building has annual gross income of $90,000, expenses of $31,500, is 5 units and 5,000 square foot of rentable space, the values would be the following:
GRM: $90,000 annual income x 17 average GRM = $1,530,000
Cap Rate: $90,000 annual income - $31,500 expenses = $58,500 net operating income $1,900,000
Price Per Unit: 5 Units x $506,000 average = $2,530,000
Price per square foot: 5,000sqft x $360/average sqft = $1,800,000
The averages based on the subject property are as follows:
GRM: $1,530,000
Cap Rate: $1,900,000
Price Per Unit: $2,530,000
Price per square foot: 1,800,000
The average of the four of these value indicators is: $1,940,000
If you weigh the GRM and Cap rate for 60% of the value and price per square foot and price per unit as 40% of the value, you have a value of: $1,895,000
As a broker, we understand what neighborhoods are selling for and if buyers will be willing to pay more or less for certain income and property conditions, but if you want a rough idea, this is a simplified version of how to keep track of your property value.
Written by: Christina Labowicz, Apartment Advisor with ACI Apartments | (858) 876-5701 | Christina.ACIApartments@gmail.com | BOOK A CALL: calendly.com/christina-aciapartments