Property Valuation

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Posted by Sammy on November 19, 2008 at 21:43:33:

Friends,

I am helping a groupd of friends in analysing and valuing a 26 unit apartment building. I was entrusted this since I am in the financial services. However, I have never valued a building. Using a simple spreadsheet, here is what I have done and I would appreciate it if anyone of you experts can tell me if this is how y'all go about valuing a property (also please see my questions at the bottom).

Rental Income: $150,000
Costs and Expenses:
Taxes (I assumed 3% of the ask price of $600K) 18000
Insurance 1000 (got this from the tax forms provided by the Seller)
Utilities (15% of the Rev)
Vacancy Factor (20% of the Rev)
This is higher since 5 units are currently vacant
Management Fee 5% of Rev
Maintenance Reserve 5% of Rev
Loss Reserve 5% of Rev
Miscellaneous 5% of Rev

After deducting all expenses I get the NOI. Now, I am faced with the problem.....
- How does one know the cap rate Im using is the correct rate?What are the sources I use for this?
- I know it can be derived using the Ask Price but then the correct Ask Price or the accurate Ask price is what I am looking for (I cant take what the Seller says as given).

This might be a very basic question for you but you would help me a ton with your answers and advice.
If there is anything else a newbie should keep in mind, please do not hesitate to let me know.
Thanks in advance.

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