How do I estimate market value?

[Scott Sutton]

I have a friend with an 86-unit apartment building on Mt. Prospect Avenue in Newark, NJ. He's thinking of selling the property, and he asked me how he should estimate the market value.

$630K yearly - Gross Operating Income (including a vacancy factor of 13%)

$457K yearly - Gross Operating Expenses

$173K yearly - Net Operating Income

I'm unfamiliar with calculations of market value for apartment buildings of this size, so I'm wondering if anyone could please provide some guidance in how to do so.

Thanks,

Scott...

[Joel Owens]

73% operating expenses is off the charts unless your friend is paying himself out a big salary and retirement etc.

Age of the building and location will determine what CAP rate a buyer will pay among many other factors.If your friend owner finances a portion they may be able to extract a higher price.If they want a straight sale from a cash buyer the price will be lower.

The scary part is your friend owns an 86 unit but does not know how to go about estimating value.I expect this with investors owning 4 to 10 units but not usually complexes that big.To purchase ones that big usually the owner has a very good grasp of cost and resale analysis.

Investor buyers will look at value add with the property as well the current CAP rate going in and projected CAP rate later on.

For an older building a 10% CAP is a good starting point to draw interest in many markets.That would put your friend at a sales price of 1,730,000 before resale costs.

Really needs a commercial broker in the area that specializes in these types of property.