How to Value Apartment Complexes

[John E.]

Hello, BiggerPockets community!

First time poster here!

My name is John. I'm very interested in the idea of investing in apartment complexes, and have thought about it for quite some time, but wanted to educate myself as much as possible before I committed to my first deal. The past few months consisted of heavy research using the internet, reading books, and attending some local real estate gatherings. The goal was to gain a rudimentary understanding of the multi-family industry, and I believe I've achieved that. However, while I've spent the time educating myself, there's one topic that still confuses me, and I was hoping the BP community could provide a comprehensive explanation. That topic deals with valuation.

QUESTION: Better put, how do you know when an apartment complex is over priced, under priced, or exactly where it should be? 

I've provided an example below, with what I believe is enough information, and was hoping someone could breakdown why this deal is over priced, under priced, or right on target. I learn best with examples, so an in-depth analysis and step by step breakdown would be EXTREMELY appreciated.

I'd like to take a moment and thank you all in advance for your guidance!!!!!

Information:

Asking Price: $1,295,000

Number of Units: 24

Cap Rate: 7.5%

Occupancy: 96%

Gross Income: $173,862

Total Expenses: $76,412

NOI: $97,450

Extra Questions:

1. How did this particular example come up with 7.5% as the cap? What formula was used? My understanding is cap rate= purchase price / annual NOI, so did the owner simply take their own purchasing price when they bought their property and divided it by their annual NOI ($97,450)?

2. Are there appraisers that will provide you with this information? If so, is performing your own analysis really required?

3. Does this seem like a fair asking price? Why or why not?