How to Value a Multifamily Property

Multifamily property investing is attracting ever more interest, leading to increased demand. However, many investors are unsure how to value multifamily property. How do you quickly assess deals to see if they’re worth making an offer on, and how much should you bid?

Knowing how to value a multifamily property and keenly assessing the deal for cash flow and value-add opportunities can help you find deals that benefit you and other investors who may not have the time or interest to value the property themselves. In this document, we explore what multifamily properties are and how to value them so you can level up your investing strategy.

Calculate capitalization rates (cap rates). Capitalization rates, or cap rates, are the expected rate of return based on the income in real estate. Knowing the cap rate when deciding which property to invest in can be helpful. The formula for calculating cap rates is: NOI / value = cap rate. For example, if the property has an NOI of $50,000 and is listed for $500,000, then the cap rate would be: $50,000 / $500,000 = 10. It’s a simple equation that can tell you a lot about the multifamily property you’re interested in.

Do due diligence. When you’re looking at hundreds of deals, quick analyses can save you a tremendous amount of time. Do your due diligence for each multifamily property that you’re serious about investing in. This includes obtaining bank statements, rent rolls, unit inspections, and so on. All the documentation and hard facts will either confirm your assumptions and verify the numbers, or they won’t.
Find the right location. Where your multifamily property deal is located will play into its overall value, especially long term. Make sure to research the neighborhood around the building as well as the city it’s in to understand its potential. The more you know about the area, the better you can determine whether the value of the property will increase or decrease over time. Look into an area’s crime rate, demographic makeup, and economic stability. These are all good indicators of where the location is headed in terms of whether people will want to live there.
Perform a comparable search. Check out what rents are for similar units to the multifamily property you’re considering as an investment. By performing a comparable search, you’ll get an idea of your rental income. It will also give you an idea of the price similar multifamily properties are selling for nearby. You have to take into consideration the age and condition of comparable properties when doing your search. With the numbers for comparable properties in hand, you can look at the numbers for your potential investment and see if they make sense. If you have to do work on the property, use the comps to see which units are experiencing higher occupancy. Try to choose a multifamily property that will attract the most renters.

Go see the property. The last thing you can do is go see the property for yourself. You’ll be able to drive through the neighborhood and see how it is with your own eyes. Walk through the grounds of the building, look at maintenance areas, explore common spaces, and, if you can, go into the units themselves. As you walk around, you need to ask yourself what makes the property unique and what you will need to do to improve it. If the property looks good and you think it’s a deal you want to make, you can move forward with it. On the other hand, if you don’t like it or something doesn’t work out on paper, don’t be afraid to leave the deal. Either way, you’ll know how to value multifamily property the right way.

If you are in need of an experienced commercial real estate broker I can be reached at 281-222-0433, or you can visit here to schedule a consultation: https://calendly.com/vikingenterprise

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