Since you’re reading this post, I’ll assume that you have a strong interest in buying an apartment building. When it comes to investing in a property, you need to put some factors into consideration. The first factor is location; you certainly need more information about it to be able to achieve an accurate valuation of the property. Apart from location, other key factors you need to consider before purchasing a property are vertical communities, the strata title, aspect & layout, and the building amenities.
Getting the right value for a property is very important before purchasing it. One way to go about it is by speaking to the right apartment buildings valuation firm, such as Apartments Value. That aside, you can also check down to know exactly how the valuation of property works with the GRM approach.
Here’s how to value apartment buildings
Before going ahead to purchase a building, you need to understand how much the property is worth. Here’s where the importance of performing valuation on the building comes into play. Interestingly, valuation, using the right company, isn’t as expensive as you may have thought. It’s also not difficult to calculate, as many people suggest.
That said, here’s how to achieve the right apartment building value with the GRM approach:
Use the GRM approach
GRM is an acronym for Gross Rent Multiple. This approach is effective if the property you’re looking to buy is already commanding monthly rents. Before going ahead with this approach, you need to get answers to these questions:
- How much does it cost to rent the building in a month?
- Where exactly is the property located?
- What is the gross rent multiplier for the building?
- How many units does the property have?
Today, for you to determine the gross rent multiplier for a building, you need to first understand its location. Tier 1 apartments, such as the metropolitan Chicago apartment buildings or properties in the Silicon Valley (California), have properties selling at GRM of 10, 11, or even more. As for tier 2 apartments, they fall between the range of 7 and 9; while tier 3 buildings fall between 4 and 6.
That said, let’s assume the property you want to purchase falls under the tier 1 category. Also, the assumption is that the building has 10 units and each of them goes out for $1,000 monthly.
For you to calculate the value of the property, you need to first determine the gross rent for a year. Here’s how to calculate the annual gross rent below:
$1,000 × 10 (units) × 12 months = $120,000 per 10 units.
Now, to calculate the sample property value, you need to multiply the annual gross rent by the exact gross rent multiplier. Since the building is under the tier 1 category, we can use a GRM of 11. With that, the total worth of the entire building will be $120,000 × 11 = $1,320,000.
Get an investment property company for your valuation
As earlier mentioned, the valuation of a property is not expensive if you have the right firm. Apartments Value is one of the most reliable companies that could assist you in getting the right apartment building value, using real-time market data.
Also Read: 5 Steps To Get Your FCA Application Done.
