Thinking about buying or selling an apartment building in LA? Understanding how multifamily properties are valued is the first step, and it’s simpler than most people think.
It’s All About Income
Unlike single-family homes, multifamily properties are valued based on the income they generate, not comparable sales alone. The most common method is the income approach, which uses two key figures: Net Operating Income (NOI) and Cap Rate.
Net Operating Income (NOI)
NOI is your property’s annual income after operating expenses, including property management, maintenance, insurance, and taxes, but before debt service. The higher your NOI, the more your property is worth.
Cap Rate
The capitalization rate (cap rate) reflects the return an investor expects for a given level of risk. In Los Angeles, cap rates for multifamily properties typically run between 4% and 5% depending on submarket, property class, and condition.
The formula is straightforward:
Value = NOI / Cap Rate
So a building generating $120,000 in NOI in a 4.5% cap rate market would be valued at roughly $2.67 million.
What Moves the Needle
A few factors can significantly impact your property’s value:
- Below-market rents: Tenants paying under market rate suppress NOI and compress value. Buyers will underwrite to current rents, not potential.
- Deferred maintenance: Investors discount for work that needs to be done.
- Unit mix: A building with larger units or more desirable layouts commands a premium.
- Location: Submarkets like the South Bay, Culver City, and West LA consistently attract strong investor demand.
Work With Someone Who Knows the Market
Cap rates and buyer demand shift constantly in Los Angeles. A property that was priced conservatively two years ago may be worth significantly more or less today. Working with a broker who specializes in LA multifamily investment sales means you get a valuation grounded in real, current transaction data, not guesswork.
John Katnik and Maxwell Forester have closed over $503 million in multifamily transactions across the greater Los Angeles area. If you’re curious what your building is worth, reach out for a complimentary valuation.