Steps to Calculate an Apartment Building's Value

If you are in the market to purchase an apartment building, it is important that you know how to calculate the building's value. An apartment building must be profitable in order to make it a safe investment. Following these simple steps will help you calculate the value.

Calculating an Apartment Building's Value

1. Determine the annual operating revenue of all income generated by the property.

2. Determine the total annual operating expenses. The operating expenses should include all expenses paid by the owner. Operating expenses do not include any type of building improvements.

3. Subtract the operating expenses from the annual revenue to determine net operating income.

4. You must then find the CAP rate for similar building that have sold in the same area. CAP rate is a percentage of net operating income. CAP rates can be anywhere from 0.06 to 0.12 percent, depending on the the size of the building, location and general condition of the building.

5. Divide the net operating income by the CAP rate to determine the building's value. If the net operating income is $75,000 and the local CAP rate is 0.08, the calculation is: $75,000 / 0.08 = $937,500.