My partner and I have had pretty good success investing in single family homes. In our first 5 months we picked up over 10 properties. We want to take the leap and purchase an apartment. After researching quite a few properties we found a guy that wants to get rid of 5, 30 & 40 unit properties. His selling prices range from $900k to $1.1M. Now, we’re pretty excited but I doubt we’ll try to purchase all 5…we’d be happy with one.
We can easily determine the price of a single family home. How in the world do we determine if we’re getting a good deal on any of these apartments? What’s the best or most logical way to evaluate the purchase price of a property this size.
First you need to take a good look at the income & expenses. Ideally, you will want it for the past 3 years.
To determine what your maximum offering price should be, use
NOI / Cap rate = Max Price to the seller
So if the net operating income is $100,000 and the cap rate is 8.5% (a local commercial realtor can give you the cap rates for your area) then the most you would want to offer to pay is $1,176,470.
Other factors that would affect financing is the condition of the property, the location of the property and the vacancy.