Property valuation is everything when it comes to buying or selling a multifamily property. If you need financing for an acquisition, every lender will want to know the market value of your apartment building — and its value will impact the loan terms you get. Similarly, if you’re selling an apartment complex, you need to know its value to determine the correct pricing. And, of course, it is imperative to know your asset’s market value for tax purposes.

This article will explore how multifamily properties are valued with some tips on improving your property value and obtaining a higher return on investment.

What It Means to Value a Multifamily Property

The easiest way to understand how to value a multifamily property is by looking at what it means to value any property. Property valuation, or appraisal, is the process of determining the market value of a property. This valuation is done by a professional, such as a licensed appraiser, and is based on the factors that influence the property’s value. This includes factors like location, age, condition, square footage, amenities and other important considerations. 

When it comes to multifamily properties, there are a few additional factors that come into play when trying to determine its value. The most important factor is the income potential of the property. That includes things like the income from rent, occupancy rate, and any other income sources like parking fees or laundry facilities. This is especially true of larger multifamily properties. 

Multifamily Property Appraisals

When valuing a multifamily property, a professional appraiser should look at several factors in order to determine the fair market value of the property. The appraiser will typically examine the property’s condition and location, square footage, and amenities, as well as its income potential. 

The appraiser will also consider the cost to renovate or repair the property, if necessary. If the property requires a lot of repair, this could affect its value. In addition, the appraiser will also consider the current market trends in the area. This could influence the value of the property, depending on whether the market is on the rise or in decline.

Broker Price Opinion: An Alternative to Appraisals

If you don’t need an appraisal for financing or tax purposes, you may be able to get by with a BPO, or broker price opinion. This report is far less detailed than a formal appraisal, and is generally significantly less costly. These investigations can include just a walk around the property but may go more in depth, depending on the inspector and how deep of a report you’re looking for.

Usually, in addition to a site visit, a BPO will also compare your asset to a few properties in your market that have recently changed hands — as well as a few listed for sale. Based on these values, the broker price opinion can provide you with a good valuation of a property. Again, however, this will not be acceptable for tax or financing purposes.

How to Improve Your Property's Value

Improving the value of a multifamily property is key to getting a good return on investment. Here are a few tips to help improve the value of your multifamily property.

Make Sure the Property Is in Good Condition

You’ll want to repair any damage and take care of any regular maintenance issues prior to a property valuation. If the apartment building wouldn’t be appealing for potential residents, this will absolutely affect its valuation.

Invest in Upgrades

If your community would benefit from some quality-of-life upgrades like new amenities, making these upgrades ahead of time can help increase its value. This can include things like replacing old appliances, updating unit interiors, or even just adding appliances like a washer and dryer to units. 

Evaluate Your Rents

If your property’s income is higher, its overall value will be higher. It makes sense, right? Just be careful that increasing your rents doesn’t put you at risk of elevated vacancies. If your asset is in good condition and you’ve put money into upgrades and amenities, however, rent increases are a viable option. Just note that appraisers typically look at your in-place rents on your rent roll — not the asking rents for a few vacant units.

Improving Your Multifamily ROI

Improving the return on investment, or ROI, of your multifamily property is an important part of most investment strategies. To do this, you need to ensure that you are making the most of your income potential.

While this often gets reduced down to rent increases, there are many other ways to boost ROI. Finding ways to save on expenses, for example, and boosting resident retention are critical to a good return on investment. Find efficiencies where you can, and make your residents feel at home, and you’ll likely do well. 

Conclusion

Valuing a multifamily property is an important step in understanding the nature of the loan you will receive when purchasing or refinancing a property. It is essential to understand what goes into valuing the property and how to improve its value in order to increase its ROI. By following the tips outlined in this article, you will be better equipped to make informed decisions when dealing with multifamily loans. 

In conclusion, understanding how to value multifamily property and then improving its value is essential to ensure a good return on investment. Keep in mind the factors that go into valuing the property, and look for ways to improve the property in order to make the most of your investment. By doing so, you will be better prepared to make the best decisions when dealing with multifamily loans.

If you’re curious about what financing options are available to you, we can talk you through the full range, whether it’s a Fannie Mae multifamily loan or financing from a credit union or life company. Just complete the form below, and we’ll get back to you with a free quote.