Back of the Envelope Calculation (BOTE)
"Back of the Envelope" way to calculate the value of an apartment building:
Assumptions:
10 Unit - New Construction Building building in Los Angeles
Monthly Rent: $2,000
Market Cap Rate is 4.25%
"Back of the Envelope" way to calculate the value of an apartment building:
Assumptions:
10 Unit - New Construction Building in Los Angeles
Monthly Rent: $2,000
The market Cap Rate is 4.25%
Units #s X Monthly Rent = Gross Monthly Rent
Gross Monthly Rent x 12 months = Total Yearly Gross Rent
Total Yearly Gross Rents x .97 (3% Vacancy and collection loss) x .7 (30% Expense ratio) ] / .0425 (4.25% cap rate) = Value of the Building
Ex:
10 Units @ $2,000
Rents 10 x 2,000 x 12 x .97 x .7 /.0425 = 3,834,352 (press exactly that in order)
Gross Yearly Rents = 240,000
GRM Check: 3,834,352/240,000 = 15.9
The average and Median New Construction GRM on smaller buildings in Los Angeles is 15.9 GRM
These are pre-Covid (need updating)
