Determining value on vacant apartment building

[John Pearl]

Greetings,

I have recently started analyzing some deals in the small apartment building realm. For the past year or so, I have been reading everything I can and scouring the BP forums and now its time to start taking some action. 

When determining the value of commercial multifamily, I understand one would apply NOI/Cap Rate. But what if a property has been vacant and boarded up for a few years?

Any feedback would be much appreciated. Additionally, I am currently in CA and looking for places in AZ/NV. Any other recommendations in regards to getting started with out of state MF investing are welcomed as well!

[Charles Carillo]

@John Pearl

You are correct, the value is determined from the NOI in CRE. If you want to reverse engineer the value from a building that is vacant, I would first determine how much it will cost to get the building rent ready. This is the hardest part since there are probably a number of outdated violations etc that need to be handled. You need to go through the city hall and find all of the violations. I would not estimate repairing any mechanicals. I always factor in, all new mechanicals (unless it is obvious they are brand new during inspection) and a new roof. If it is boarded it up, the windows might still be good but when you walk the property you can decide. Factor in all holding costs during renovation, insurance, taxes etc. Secondly, figure out the rents and go off the low numbers you find and factor in vacancy. You can then find the future value by using the cap rate for the area. Lastly, subtract the profit for you managing the renovations and you will arrive at some value that will represent your work.