How to Value an Apartment Property
The value of the apartment property is the crucial value while deciding on the question of investing in an apartment property.
Usually the methods of gross rental income, gross rental multipliers are used to determine the value of the apartment property. These are all based on the gross income derived from the property. But these methods are not correct as they completely neglect the number of expenses incurred in the property.
The real value of the apartment property can be arrived at by considering the values of potential gross income, the actual gross income, the management costs, etc. The vacancy allowances and the reserves maintained for repairs and replacements including the normal operating expenses must also be taken into account. This will give the net income that is taken out of the apartment building.
After this, the cap rates applicable to the apartment building must be analyzed to arrive at the real value of the apartment unit based on the capitalization of the net income.
Thus, you have to take into account the net operating income and the cap rate that is applicable to the building. The cap rate is determined by the local market conditions, and this leads to a change in the value of the property depending on the raising of rents and reducing the expenses as well as economic changes that take place in the local rental market.