Appraising Commercial Apartments

[Iron Range]

That's funny, it sure seemed like a fight.  A cat fight anyway. 

[Sean_L]

EZLOAN, EZLOAN you did not read my last post before you did your research. 
I stated that yield capitalization is the preferred method by meself and many REITs across the country for that matter. Yield capitalization does take into account the things you listed, and thats why its preferred. It is also very technical and not for beginners who don't understand the six functions of a dollar and how they are applied to real estate.

BOI is a good method for a quick evaluation that with a little knowledge of the market can be very useful. Is it widely used in appraisal?...No The reason is simplicity and documentation. It's easier to explain your value decision based on past sales than assumptions your making about the market. Which, is what an investor does with value. Appraised value and investment value are not the same. Appraisers try to explain the market while investors (buyers of real estate) make the market decisions. Market extraction is the preferred method for appraisers MAI and alike if the data is available. If the data is not available they will use other methods to arrive at a market value...ie Cost & Income

Mikes approach makes sense Iron. The reason it does is because where he likes to buy. We can not give you a real idea of value without knowing your market. Look at sales in your market and that will tell you all you need to know.

10 units @ 100,000(market value) = $1,000,000

NOI = 100,000

Cap = .10(within market range via sales)

I want an equity position of 20% and I have 5% of my own. I also want a total return of 13.33% and an equity return of 15%. With that said, I would need to buy it for $750,000. I need to buy it at $750,000 because $100,000/.13333333 = $750,000. 

Does it meet my equity return requirement?

Remember BOI, well here it is applied. I have a mortgage interest rate of 8.00% and a mortgage constant of 9.262%. You now have debt service a year at $69,463 on $750,000 and a CFBT of $30,537 a year for a total return on equity of $30,537/$250,000 = 12.21% or your return on invested equity $30,537/$50,000 = 60.07%.

BOI = .09262(.75) + .1221(.25) = .06947 + .03053 = .10




I had to change the last part of this post because I was way off on my analysis. I apologize for the misinformation, I was tired last night when I wrote it. If I made any other mistakes please correct me but, I think we are fine.

[Speedy Word]

I would like to know how to appraise a commercial property.  I can go into a 20 unit apartment get all the finances and say "At the asking price there will be $1,200 a month positive or $1,200 negative".  But what I can't do is go into a 20 unit and look at the finances of a property priced at $500,000 property and say "it will appraise out at $750,000".   I am trying to find commercial properties that are less than 65% of market value. I can find a good deal, but I'm not sure how to assign a market value.

I know how to cash flow, but I don't know how to you assign an actual value to the numbers.  Does anyone have any techniques in getting an actual appraised value on commercial apartments???

oy...
this topic is too broad. why don't you educate yourself on the basics of commercial RE investing before posting stuff like this? try this book.. it helped me a lot:

http://www.amazon.com/gp/product/0071422579?ie=UTF8&tag=xanga04e-20&link_code=as3&camp=211189&creative=373489&creativeASIN=0071422579

[Iron Range]

Basics? Listen genius I know the basics. I was asking for a quick formula that others use to get a reasonably close estimate of what an appraiser would come up with. I'm not looking for a complicated system so I can become an appraiser. I buy at great discounts, so I have never cared how/why an appraiser does their thing.  I only care about "Cash in Vs. Cash out" and maybe a rough estimate on what it is worth. I know my market so I can easily estimate 1-4 unit properties, but it is a little tricker when you're looking at estimating larger apartments. I recently started using a HML for large apartments.  As you "may" know most HML are real particular on what the appraiser thinks.  I don't care what an appraiser thinks, only the cash flow (which by the way is all that really matters).  But I don't want to have pay for an appraisal just to have it come back at 70% when I need it below 60% (role in closing costs). 

Thanks for the link, I'll take a look.

[DFWHoldings]

The fundamental difference between this argumet is the difference between an investment's future value and current value.

Appraisers give an opinion of value for a given property in the present tense. Their value of what it is worth today. Yield capitalization gives you an idea of what the future value of the property may be. It's really a totally different, and to an investor, more important way to value properties.

Here's an example.

Lets say you're buying Gold on the mercantile exchange. Lets say today it closes at $700 an ounce. That $700 an ounce is what an 'appraiser' would say. He would give you the value right now. However, chosing to invest in it really has to do what what it will be worth tomorrow not today. So if it's worth $800 tomorrow it's a great investment, if it's worth $600 it's a terrible investment. So the bottom line is one method is used for lenders (of which I am one) to determine to lend on a property today. The other method is used by investors to determine if it's a good value tomorrow.

Do not use the method that lenders use to compute whether something is a good investment or not. Our profit points are far  different than investors. Lenders work in a vacuum and investors work in context. I say that to people all the time and after a few moments of explanation they usually get what I mean.