Multifamily Valuation Question?
Hi All, I was wondering if anyone could provide guidance on multifamily income and expense assumptions.
For example, if I have average gross rents for the different unit mixes in a 100 unit building, how much additional income would I add on top of rent? I've heard I can find NOI by assuming a 35% expense ratio but I'm curious on how much percent or how much extra income per unit would I add on? Are there any other assumptions I should keep in mind? I only have gross rents and wasn't sure if anyone had any tips or advice to figure out a possible NOI.
I'm doing this for a research project for school and was hoping to find out what assumptions you guys use in the industry! :)
Why would there be additional income from the units
Not sure why I'm being hit with MS - I am curious and don't know what other income would come from owning an apartment building besides rent (assuming upkeep and general admin tasks are incorporated in that).
Parking, laundry, expense reimbursement, etc.
Woah..replied to mine at the exact same time as you
Have you ever rented? There can be a ton of different fees, pet fees, pest fees, trash fees, damage fees, late fees, garage fees, cleaning fees, etc.
If you have gross rents, then there will be less net income due to concessions or vacancy, not more.
Yes, that's exactly what I mean. Sorry, I'm still learning and wasn't sure how much concessions take out of gross rents. I was going to find the average vacancy rate and add that in as well but do I need to consider anything else before multiplying gross rents/income by expense ratio to get an estimated NOI?
Bad debt allowance (a.k.a. arrears or economic vacancy, basically rent owed that you won't collect). Depending on what's included in your operating expenses, the cost to renovate vacant units. Lots of little things. Depends on the specific circumstances of the building
Do you mean extra income as in parking income, service fees, etc.?
Yes, I was using my friend's costar and yardi and I was able to find "actual" and "market" rents for a few properties. I wanted to see how I could best estimate NOI and value of a multifamily property from there.
Are you allowed to pull numbers out of your ass or do your assumptions have to be based on actual market info? Basic operating statement PGI -loss to lease -concessions +other income -vacancy =EGI -op ex =NOI -Replacement reserves =NOI after reserves /cap rate =valu
I am trying to base it off of actual market info as closely as possible. This is just a practice research project I am doing. I wasn't sure how much percentage loss to lease and concessions should be around.
1% of pgi each.
I think 35% expense ratio is pretty aggressive, the property could easily have 50% expense ratio and then your other income point is mute. If you’re going for such a broad approach you might as well look at the last sale and then base value assuming nothings substantially changed and there’s been inflation. People make a livelihood from real estate valuation. If you want to do real research, then you have to justify each assumption. What’s vacancy expected to be (maybe use submarket data if historical financials aren’t available)? Is there laundry income? What’re taxes? What’s the payroll schedule, etc. I’d try to get your hands on a real property appraisal to see how they go about valuation for a good perspective.
What would I do if the building is recent built and does not have any sales information? I am basing vacancy rate based off of the specific neighborhood in New York and the vacancy of like-wise buildings around the area. In the case that I use a property that was built a year or two ago for my project, would a 35% expense ratio work better for recently built buildings?
Just so you know, for any serious analysis you can't just assume a 35% blanket expense ratio. You have to go item by item, and it involves looking at past income statements. Expense ratio could be lower than 35%, or significantly higher.
Is this for a fictional or real property? You can try finding some excel models online to see how it's done.
What would you recommend for the closest way to valuate a newly built building if I'm not able to get a hold of the past income statements. For example, if a building was built in the past 2-3 years but I have average "actual rents" from Yardi or Costar? This would be for a real property. I have a few excel models but I'm trying to figure out how I can best valuate a building without an income statement or expenses.
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