There are 4 value indicators to determine property valuation and market insights of the value of a 5+ unit apartment building, including:
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- Price per unit
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- Price per square foot
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- Gross Rent Multiplier (GRM) – The ratio of gross annualized rent to the price
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- Capitalization Rate (Cap Rate) – The ratio of the net operating income to the price
Property valuation and market insights can be calculated by taking a look at 3-5 comps in the subject property’s neighborhood. 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 property valuation and market insight:
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
Market insight averages based on the subject property valuation 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 property valuations and market insights of 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.
