Some of my Apartment owners have asked me to determine the estimated value of their property for estate planning. Others I have done for listing their property. Below is an estate planning estimate I did for an owner in January 2015. You may perform the same for your property using the same methods. If you have any questions contact me at firstname.lastname@example.org or email@example.com and I can help you.
Estimate of Value
8 Unit Apartment, Monterey CA
As of January 1, 2015
You asked me for “estimate of value” of your Mom’s apartments for use by your financial advisor. To estimate this I have used data from our Multiple Listing Service (MLS) for multifamily (apartments) properties that are now for sale and those that have sold since January 1, 2013. As you may know income properties are valued primarily on the property rents received and their operating expenses. Although we are not paying your mortgage, you should know that mortgage payments are not considered operating expenses for valuation purposes. From the MLS properties I considered, I have used their Gross Rent Multiplier and Capitalization Rate ratios to determine an estimate of value for your property. I have limited properties considered to those in comparable Monterey areas and in Pacific Grove.
When I provide apartment owners with a recommended listing and sale prices prior to listing their apartments, I use a more rigorous pricing process which includes the most recent sales comparable from broker colleagues that sell properties outside the MLS system and other analysis.
My MLS property data suggests the following for multifamily properties considered:
Gross Rent Multiplier = Sale Price/Potential Gross Rents = 12-14 range
Capitalization Rate = Net Operating Income/ Sale Price = 4% to 5% range
Using Gross Rent Multiplier method:
Gross Rent Multiplier = Sale Price/Potential Gross Rents =12 to 14
Potential Gross Rents = Potential Rents+ Laundry income-Vacancies & Credit losses+ other income for a year
Potential Gross Rents = $111,300 with expected rent increases on 1/1/15 and assuming no vacancies
Sale Price= Gross Rent Multiplier x Potential Gross Rents= $111,300 x 12 = $1,335,600
= $111,300 x 14= $1,558,200
Using Capitalization Rate method:
Capitalization Rate = Net Operating Income/ Sale Price = 4% to 5%
Net Operating Income = Potential Gross Rents – Operating Expenses
Note: I have your actual operating expenses through October, 2014 and estimated the last two months of the year for 2014 and included the new property taxes.
Operating Expenses = $50,485 Net Operating Income = $111,300 – $50,485 = $62,815
Sale Price = Net Operating Income/ Capitalization Rate = $62,815/4% = $1,570,375
= $62,815/5% = $1,256,300
I would estimate your value closer to the higher numbers in the above ranges.
If in the future you are interested in selling the property let me know if I can help you. I have represented buyers and sellers with multifamily properties. Also, my wife and I own one as well.
Steven Kramer, CCIM (Certified Commercial Investment Member)
Steven Kramer Real Estate Group & Munras Property Management