Articles
Factors in multi-unit valuation
How do you determine value? Some items to consider are listed below.
Note that your particular goals will influence the relative importance of each. Certain people might buy strictly for cash-flow and ignore future upside, while others see the future upside and are willing to pay more even if cash-flow is poorer to start with. Others might look for condo conversion potential or prefer high leverage or prefer low leverage with less upside but better cash-flow...
So.. All and all... a complex and not always easy answer why we pay X for a certain property... Or ask for a price reduction or don't buy or do buy!
- price/door
- CAP rate (or yield) - going in .. CAP rate being NOI / price (NOI being net operating income, i.e. rent minus operating expenses like taxes, utilities, management fees, insurance, R&M allowance)
- CAP rate after improvements
- rent control laws in the province/state
- price per sq ft
- GRM (gross rent multiplier)
- suite size
- balconies
- condition of interior
- condition of common areas
- condition of exterior
- condition of major elements like: roof, boiler, windows, elevator
- elevator premium
- tenants pay utilities or not
- condo conversion potential
- upside of area
- upside of city
- manageability
- rental competition in the area
- CAP rate compression or expansion in the future
- interest rates
- interest rate outlook
- CMHC loan-to-value insurance fees
- transportation improvements
- employment today in the region
- employment outlook in the region for the next 3-6 years
- potential for add'l construction on "free land" that comes with property
- environmental Phase 1 and occasionally phase 2 reports
Written by Thomas Beyer. Thomas is president of Prestigious Properties Group - www.prestprop.com
Prestigious Properties Group specializes in acquiring, managing, and turning around under performing multi-family apartment buildings. As of 2009 he currently oversees operation of approximately 85 million dollars of real estate assets, with a total of over 1,150 units in AB, BC, SK, MI and TX. He can be reached through phone at 403-678-3330, through email at tbeyer@prestprop.com