Apartment Building Appraisal
Apartment buildings are generally analyzed in terms of the number of the different types of apartment units that they contain. These can include efficiency units, in which one room serves as a living room, dining room and bedroom, or one-bedroom, two-bedroom, or three-bedroom units. The efficiency units are most popular with single tenants who are interested in lower rents and who spend little time entertaining others in their units. The larger units are more popular among roommates, couples, or families. One-bedroom units tend to be the most popular in most markets, but this market is also the best served.
The number of bathrooms and restrooms in the units is another prime consideration. If a two-bedroom unit has two bathrooms, two residents can take a shower at the same time, whereas if it just has a bathroom and a restroom, only one resident can shower at a time.
The amenities within the units, as well as their quality, are other important considerations. Laundry rooms, garbage disposals and compactors and dishwashers are among the in-unit amenities that may be desirable. Apartment buildings or communities might benefit from pools, club houses, game rooms, laundry rooms, and fitness centers.
An appraisal of an apartment complex involves a comparison of the rental rates and sales prices of living units like those of the property being apprised. The best comparable sales are apartment complexes that have a similar mix of living unit types and similar amenities. The building areas in terms of square feet is less important. The best comparable rentals are of similar living units.
Another important consideration is who pays the expenses. It is usually advantageous to the landlord to have the tenant pay as many utility expenses as possible. This gives the tenant an incentive to conserve in their use of these utilities. Consequently, complexes with separately metered electricity and other utilities are preferable to complexes that do not have such separate metering.
Many characteristics of apartment complexes and units that are not as obvious can also play important roles in their value. Access to and views of public recreational facilities, such as parks and beaches, can have a large influence on value. Proximity to retail stores and to workplaces can also have a significant influence. All of these factors should be considered in an appraisal.
In analyzing an apartment property, it is essential to look to the future. Apartment leases are typically only one year and turnover can be high, so these properties are highly responsive to changes in the demographics and lifestyles of the markets in which they are located. New apartment projects or changes in the character of the neighborhood influence the value of apartment projects relatively quickly compared to other property types.
It is also important not to neglect the potential to sell ownership interests in an apartment building. Condominiums are buildings in which occupants own the interior of their units and have common ownership in a separate legal entity that owns the exterior and structure of the building. Cooperatives are buildings in which the occupant leases their individual unit but has an ownership interest in a legal entity that owns the entire building. It may be desirable to convert an existing rental apartment complex to one of these forms of ownership, thus reaping income more quickly. Certain government restrictions, however, such as rent control, might prevent this.