How value an apt complex at half occupancy?
I came across a 21 unit Bldg owned by an 80 yr old lady who is sick of dealing with it. Previous management companies did a Terrible job for her and it needs some work and is at half occupancy. How do people come up with an offer price for a low occupancy place like that? Using a cap rate and noi method value is very low. At it was empty the cap rate noi method would say its worth nothing which we know isn’t the case? Assume within a year it could be fully rented. Any help would be appreciated. Oh and she owes very little on it but at this point just wants a cash offer to get her money out. That’s more deal structuring than offer price but of course they influence each other.
Hi Justin. Thanks for your question. Yes, cap rate and NOI can undervalue a low occupancy building. It’s a good idea to look at average occupancy rates in the area and see what other apartment buildings are worth at different occupancy rates. These can generally be found through a commercial real estate broker. When deciding what offer to make, take into consideration the building’s replacement cost, the value of the land and the potential future income, as well as how much time and money it will take you to get to a high occupancy rate. Unfortunately, it’s not usually a simple formula, but instead an analysis of all of these factors.
Here’s a helpful article on buying an apartment building
Best of luck,