May 28 in General discussion
How to Quickly Analyze an Apartment Deal
Here's a quick guide on how to analyze an apartment deal in just a few minutes.
Step 1: Gather Basic Information
Let's use a real deal as an example (Image not related to the post):
Asking price: $1.6M
Cap rate: 8.68%
Units: 21
Unit mix & market rents:
1 one-bedroom: $550/mo
12 two-bedrooms: $700/mo
8 three-bedrooms: $900/mo
Step 2: Calculate the Sales Price Per Door
Look at similar properties sold recently.
Comparable sales price per door: $40,000/unit
Value of the building: 21 units x $40,000/unit = $840,000
Step 3: Calculate the Net Operating Income (NOI)
Use the cap rate to find the NOI.
NOI: Asking price x cap rate
NOI: $1.6M x 8.68% = $138,880/yr
Step 4: Check the Operating Expenses
Assume operating expenses based on the property's age.
Operating expenses: 55%
Estimated revenue: NOI / (1 - operating expense ratio)
Estimated revenue: $138,880 / 0.45 = $308,622/yr
Average rent per unit: $308,622 / (21 units x 12 months) = $1,226/mo/unit
Step 5: Compare to Market Rents
Compare the estimated average rent to the market rents.
Market rent: $700 (two-bedroom average)
Estimated rent: $1,226 (too high for the market)
Conclusion:
The property is overpriced based on comparable sales and unrealistic rent assumptions. The actual value is $840K, while the asking price is $1.6M. This is a deal-breaker.
What do you think? Would you go for this deal or pass?
Do you want to learn more?
I'm having a Zoom training tomorrow, May 29 at 8 PM EST on 'How to Analyze Apartment and Hotel Deals'. If you want to join, comment below and I will give you the Zoom link.
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How to Quickly Analyze an Apartment Deal
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