How to value a multi family apartment building

[Amy Ranae]

Hello BP Friends!

I'm looking for a 10-30 unit apartment building in my market place by pulling the tax records of buildings with this many units, then looking them up and doing some research before finding the owner and reaching out for a discussion. 

Here's my question, if I know what they are getting in rent, I know I should be able to figure out what the price should be. Grant Cardone talks about this all the time. However, since I haven't done it really yet I'm looking for your help.

So can we practice together? 

Let's say it's a 10 unit building of 2br 1ba apartments that currently gets $900/mo for a unit. Without knowing operating expenses, how would you establish a guesstimated value? 

Assuming 9k/mo income = 108k/ year minus 10% (vacancy? Cap ex? what rate would you use?)  now we are at around 97k/ year income. 

Where do I go from here? 

I'm planning a 20% down commercial loan, I've got a lender. But want to start practicing on some deals in my spare time. 

Thanks! 

[Account Closed]

Amy,

The best way to "practice" a MF deal is to identify a number of properties that you find to be of interest to you and run the numbers on each of them to see how they perform unto themselves and comparatively.

The best way to run the numbers is to either create or access a pro forma workbook that you can use to uniformly analyze each property. I have not looked to see if BP has such a pro forma, but encourage you to do so yourself. I have created numerous pro forma workbooks including a tool that to specifically analyze MF properties.

In addition to running numbers on how a property financially performs at the point of acquisition, it is important to include forward looking data to understand how the project will perform into the future. Some of the variables that affect future performance include (but are not limited to): The Holding Period, escalation rates for rents and expenses, assumed cap rate at the point of sale (POS), commissions and closing costs at POS, loan balance(s) at POS, capital gains tax at POS.

Any analysis that you run should produce a set of key data points on a Project wide basis such as cash on cash returns, IRR, discounted cashflow as well as profit to cost and profit to equity. If there is more than one owner (i.e. 3rd party investor(s), owner carry/participation), each Stakeholder's needs to factored in the aforementioned terms as well to ensure that the deal works for all parties involved with it.

Let me know if you have any questions and I'll be happy to answer them if I can.