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How to Value an Apartment Building in 15 Minutes

By Terry Painter/Mortgage Banker, Author of “The Encyclopedia of Commercial Real Estate Advice” – Published by Wiley, Member of The Forbes Real Estate Council


Try one or all 4 of these ways to value an apartment building in 15 minutes:

  1. Average Price per Door
  2. Use a Gross Rent Multiplier
  3. Cap Rate Quick Valuation Method
  4. Average the Value of all 3 above


Why You need to Know an Apartment Building’s Value Quickly

So you wake up early one morning thinking about finding the perfect apartment building to invest in. And then you find it on LoopNet;  a 16-unit turns your head. It’s priced at $2,310,000. What you really want to know, and you want to know it now – is if it is overpriced, underpriced, or priced fairly. You call the listing broker and are told the property is 100% occupied and in good condition. She emails you a marketing flyer that tells you the rents per unit, the gross annual rents, annual expenses, the annual net operating income and the cap rate. You are tempted to make an appointment to see the property, but before you invest the time to do that, you just want to know what the property is likely worth? 



In my book “The Encyclopedia of Commercial Real Estate Advice”, I go into detail on how you can determine a commercial property's value in 15 minutes. It's just smart for you to do some investigation yourself on the listing price. This will save you time and money. It just doesn’t make sense for you to make an offer on a property and not know if you are overpaying for it. Worse yet, to wait the 30 days for a commercial appraisal to be completed after you apply for your loan to know this. The 4 methods for determining the value of an apartment building that I go into in this article will not be as accurate as a full blown commercial appraisal, but they should give you a cozy feeling about what the property is likely worth in that market.  


I should mention that from my experience closing hundreds of commercial loans over the past 24 years, I have found commercial appraisals to not be an exact science.This is because the appraiser starts out with what I call a “marker”. In other words, they have a premise or an opinion about what the property is worth prior to doing all their research. When a property is being sold, the sales price is the marker. Most appraisers usually don’t want to kill the sale by coming in with a lower value than the accepted offer in the purchase contract – so more often they will find comparable sales supported by market cap rates to validate this price. After all, who would argue that the best indicator of value is what someone is willing to pay for a property. What can you do to get a cozy feeling on what an apartment complex is worth before you make an offer?  Start out with step one:


Step One - Find 3 Comparable Properties

Located 10 miles or less from subject property that are of Similar Age, Size and Condition


Before you use these methods, you are going to need to find three similar properties that are either for sale now or have sold in the past year. The properties need to be preferably within 10 miles of the subject property and be of similar age, size and condition.  You can look for data on apartment properties that have been sold on Zillow, and properties for sale on LoopNet. But the most accurate way to find these 3 comparable properties is to ask a commercial real estate broker to look this information up for you. Most subscribe to real estate sales data services like CoStar or Reis. Just tell them that you are interested in using them to be your buyer’s broker when you are ready to make an offer on this property and you are trying to determine its value. I assure you; they will happily jump through hoops for you to get a chance of representing you. If not, they will like charge you a small amount for doing a sales comparable report for you. Furthermore, it is always best to have a buyer’s real estate broker represent your interests, then just using the listing agent who is clearly representing the seller’s interests. Coming up are the 4 methods you can use to ballpark the value yourself.  But before we get started do step 2.


Step Two – Gather data on the Subject Property and the 3 Comparable Properties

Here’s what you need to know on all 4 properties:

  1. Price per door of each property
  2. Annual Gross Rent of Each Property with the Property being 100% Occupied
  3. Purchase Price
  4. Cap Rate


Step Three - Four Fast Methods of Determining Commercial Property Value

1. Average Price per Door Method This is the fastest. Figure out the price per door on the subject property. And then figure out the price per door for the 3 comparable properties. Just take the sales price and divide it by the number of units for each apartment building. Next compute the average of all 4 properties together to come up with the average price per door. For example if the subject property is being sold for $2,310,000 and has 16 units: $2,310,000/16 = 144,400 per unit. Now figure out the price per unit for the 3 comparable properties. Let’s say those come out to $142,500, $154,200, and $141,350. Lastly, average them all together to come up with the average price per door in this market. The average of all 4 is $145.613. Then multiply that price per door by the 16 units in the subject property to get the market value of the subject property. $145,613 X 16 = $2,329,808.


Subject Property: Purchase Price of $2,310,000/16 = $144,400 per unit

                                                 Comparable Property A =  $142,500 per unit

                                                 Comparable Property B =   $154,200 per unit

                                                 Comparable Property C =  $141,350 per unit                                                                                                                                                               

                                                 Total of 4 properties            $582,450/4 = $145,613 per unit


                                                         $145,613 X 16 = $2,329,808 Property Value


This value is about $20,000 under the  asking price showing it is a fair price.


2. Gross Rent Multiplier (GRM) Method – GRM is the purchase price divided by the gross annual rents with the property being 100% occupied. GRM gives you an indication of value based on the rents the property has achieved. Thus, properties with higher rents will achieve a lower or better GRM in relationship to the sales price. The lower the GRM, the higher the cash flow based on the sales price and the better your investment.


Start out by calculating the GRM for the subject property. Then figure it out for the 3 comparable properties and average all 4 GRM’s together.


                            Purchase Price/Gross Annual Rents = GRM


Subject Property GRM:  Purchase Price: $2,310,000/Annual Rents: $258,800 = 8.9 GRM

Comparable A  GRM:    Purchase Price: $2,295,000/Annual Rents: $250,600 =  9.2 GRM

Comparable B GRM:     Purchase Price: $2,780,000/Annual Rents: $306,500 =  9.0 GRM

Comparable C GRM:     Purchase Price: $2,450,000/Annual Rents: $296,750 =  8.3 GRM

                                                                                                                    Total       =  35.4

     35.4/4 = 8.85 Average GRM on All 4 Properties


Lastly, take the average GRM on all 4 properties and divide it by 4 which equals a GRM

of 8.85. Then Multiply that GRM times the annual rents of the subject property


Subject Property Annual Rent: $258,800 X 8.85 = $2,290,380 Value


Now this valuation method shows the subject property at $2,310,000 and is overpriced by $21,000.


3. Cap Rate Quick Valuation Method – Start out by determining the cap rate based on the sales price for the subject property. Cap rate is: the Net Operating Income (NOI) divided by the sales price. Next get the cap rates from the 3 comparable properties. Next, calculate the average of all 4 cap rates together.  


                                     NOI/Sales Price = Cap Rate

Subject Property Cap Rate:        6.5%

Comparable A Cap Rate:             6.2%

Comparable B Cap Rate:             6.7%

Comparable C Cap Rate:             6.0%

                            Total                  25.4%


25.4% / 4 = 6.35% Average Cap Rate on All 4 Properties


Now take the annual net operating income of the subject property for sale and divide it by the average cap rate of 6.35%.


Subject Property Net Operating Income =  $150,950/6.35 = $2,377,165 Value


This method of valuing the property shows the $2,310,000 purchase price is a good value.



4. Average Value of the 3 Previous Valuation Methods – This method is going to likely take a few minutes. Simply compute the average of the 3 above methods.  This gives you the most accurate value:


Price per Door Method                   $2,329,808

GRM Method                                    $2,290,380

Cap Rate Method                             $2,377,165


                      Total                             $ 6,997,353


$6,997,353/3 = $2,332,451

Average Value for all 3 Methods: $2,332,451


At an asking purchase price of $2,310,000  this property is priced just below its market value and it can be assumed to be a fair price. 


Amazing, but the $2,310,000 asking price for this property appears to be a bit less than its fair market value. This doesn’t mean that you should not offer less, just that if it is a seller’s market and very competitive, you will not be over paying if you buy it for the listing price.


Apartment Purchase Quick Analysis Spreadsheet


If you have the most recent 12-month profit and loss on the property you can use my apartment purchase quick analysis spreadsheet which is based on cap rate and GRM to determine value. There is one for purchases and one for refinances.  Just go to this URL:


*Note that this fast 15 minute method of valuing a commercial property is only an indicator of value based on your ability to find comparable properties in the same market that are of similar size, age and condition and is not as accurate as a commercial appraisal. 



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