How to Calculate the Value of an Apartment Building

This building is very expensive.

The three most effective ways to calculate the value, or sale price, of an apartment building are the gross rent multiplier, or GRM; the capitalization, or cap, rate; and comparative sales, or comps. Both the GRM and cap rate methods are income-based. The GRM method is quick but not very accurate, as it does not account for expenses or vacancies. The cap rate method solves this shortcoming. Comps have the benefits and drawbacks of being not so mathematically based.

Step 1

Multiply the gross potential rent by the gross rent multiplier for that building class in that area. The gross rent multiplier is the number that results from dividing a building's sale price by its gross rent.

Step 2

Divide the net operating income, or NOI, by the cap rate for that building class in that area. The NOI is the gross revenue minus operating expenses. The cap rate is the ratio of a building's NOI to its sale price expressed as a percentage.

Step 3

Use comparable sales. The price that people paid on similar buildings recently can help give you a better idea of what a similar building is worth.

Tip

You can obtain the GRM, cap rates and comps data from a real estate agent, mortgage broker or various websites.

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