May 18, 2024


Mad about real estate

How to Value Multi-family Homes and Apartment Buildings for Investment

As a real estate investor one of the best investments you can make is the purchase of an apartment building or multi-family home. By purchasing one of these money makers you can rent them out and realize passive income each and every month. If the idea of becoming a landlord turns you off, then you can simply hire a property management firm to deal with the day-to-day running of the property.

Valuation of Apartment Buildings and Multi-Family Homes

On thing that often detracts real estate investors from investing in apartments or multi-family homes is the ability to determine their value. By purchasing the right building you will be able to make passive income each month as well as grow a sizeable equity in the building itself over time.

In order to determine the value of an apartment building or multi-family home, you can use the following two equations:

Yearly Income from Rents –Yearly Maintenance/Upkeep Costs = Net Operating Expense

Net Operating Expense x10 = Approximate Value of the Property

While people will try to give you all kinds of numbers and figures on the property, the above is all you really need to make a good estimated valuation of the property itself.

Additional Due Diligence on the Property

In addition, once you have agreed upon a price for the property, then you should start the process of due diligence and take a good look at the income it has been generating each month over the past year or two. You might even want to go so far as to evaluate the current renters and their stability for renting in the future from you.

Financing an Apartment Building or Multi-Family Home

Once you have found an apartment building or multi-family home that you think you want to purchase for investment, you will then need to secure financing for it. If you have good credit, and you want to use a bank or traditional mortgage lender, they will generally lend to you on a property where you are seeing at least 75{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of your net operating income each month in rents. In other words, if the cash is flowing through the property, the bank will want to lend to you. Otherwise, you will likely need to secure private financing through other investors.

Should you decide that apartment building or multi-family home property investment is for you, make sure you evaluate the property for its value and the renters for their stability. Do your due diligence and you can make a great investment.