Question for Apartment Appraiser working in a Large Metro Area

[kevin kingston]

I have not done any apartment appraisals and had a couple of questions. In regards to a small apartment building 25-50 units:

1) Does most of your comp income/expense data come from interviews with brokers and property managers, if so how cooperative are they providing data?

2) Do you find a ratio can get you "close" regarding estimating the operating expenses (thinking from an investors point of view if you just wanted to screen a property)

Thanks....

 

[CBBoston]

The first thing is whether you're licensing level allows you to do complexs that large. If not you better have a CG supervising you. Even if your licensing level allows it and given the questions you're asking, you better be working with someone who knows how to do apartments.

1 - Yes comp info does come from thoses sources. You can't always believe what they give you even if they'll talk to you. Some will some won't. If you don't sound like you know what your talking about many won't give you the time of day.

2 - Ratios? And where might you be getting the ratio from? Owners, brokers, PMs internal files, Irem? How useful market derived ratios will be depends on how closely the data set matches the subject. Here in Beantown you find significant differences in expense ratios depending on the age (some over 100 years old) and condition of the property. Then there's the issue of whether the LL or the tenant pays for heat. Investors will take these and many other factors into consideration when analyzing a complex.

 

[Ken B]

Apartment managers are the people to interview. Some are more forthcoming than others, but, generally, getting information for the smaller projects is more difficult than for larger projects. Brokers may or may not be helpful...it depends on the person. Always verify any information you receive. Tenants are the best source of verification of rents and general upkeep of the property. Tenants are typically more than happy to point out the problem areas. Knock on doors. Just tell the tenant you are conducting a survey; that is, in fact, what you are doing and they don't need to know anything else. Be sure to ask about rent concessions.

The Appraisal Institute offers an online course regarding apartment appraisals. http://www.appraisalinstitute.org/education/course_descrb/Default.aspx?prgrm_nbr=OL-330&key_type=CO

 

[PropertyEconomics]

Kevin,

Incomes and expense comparables typically come from experience in appraising similar units. When you have a data base of comparable properties you have appraised there are actual income / expense statements to draw from. Interviews can certainly be conducted and I would guess you may find some brokers that will cooperate but the best data comes from your files. You may also check listings and see if APODs are attached which can give you a decent amount of data.

Ratios (percentages) vary greatly from property to property depending on how the property was originally constructed, what the owner pays, etc.. Based on your very limited posting no one here can give you the information you are seeking. At least not with any certainty it would even come close to being applicable to the property you are looking at.

 

[kevin kingston]

Thanks for the responses. Just looking for insight from those who do a lot of apartment appraisals, regarding your experience gathering market data.

 

[KONA]

Post me. I have a contact in Southern California who can assist you.

 

[CCAAMO]

Kevin,

Your data source for your comps should indicate the actual income and expenses for the comps in most cases. Your client should supply would with current and historical income and expense data for the subject, preferably copies of tax returns. what is the appraisal for?

 

[Vernon Martin]

If you're in SoCal, I would recommend subscribing to "Apartment Building Operating Expense Guideline" by Apartment Building Appraisers and Analysts, Inc. in Long Beach.
This used to be Dan O'Connell's company before he sold it to one of his employees.

Sometimes I get expense information from listings on LoopNet, but be mindful that these listings often undercount expenses, and will often need to be adjusted upward for management fees and reserves for replacement.

 

[CANative]

Sometimes you can glean income and expenses from the listed cap rate on LoopNet listings. But you have to remember that the cap rate is based on the original listing price, not the sale price. So you have to do a little math to convert it.

I've done about a half dozen 25-52 unit properties over the last month or so. I've got a lot of direct data. I've got a pretty good idea of typical expenses and can come up with a ratio or percentage that is good for a basic rule of thumb.

It allows me to quickly figure out if a tax appeal case is feasible. Of course if it comes to a formal hearing before a county assessment appeals board I have to "deliver the goods" but informally I can get the ball rolling using a simplified process.

This is from a 52 unit property.

"The tax payer provided the attached documents for my review. I’ve looked them over in detail and it doesn’t appear that there are any unusual expenses or unexplained items. Vacancy/rent loss appears to be typical and it also appears that the rental rates are at market. Total income as of December 31, 2008 was $435,298.77. Expenses (less property taxes and mortgage interest payments) were $163,811.15. This leaves $271,488 (rounded) as NOI. Using a cap rate of 7.5 with a 1.1 tax element (Ro 8.6) the value indication is $3,156,837. Rounded to $3,150,000."

 

[kevin kingston]

Really appreciate your responses. My initial post/question was not regarding a specific property as I'm not doing an appraisal. I'm am interested in investing in and possibly appraising apartments at some future date. So, I just want to learn more about apartment appraisals.
I've taken the appraisal institute apartment course. It was helpful, but the instructor specialized in institutional industrial/commercial properties, not apartments. So, all his first hand real world examples were not very helpful......So I'm looking for insight from those who do a lot of apartment appraisals specifically regarding gathering good market data as this seems to be the most critical and elusive part of the process.

The operating expense ratio question was from the point of view of an investor, looking to quickly screen properties before starting the in depth due diligence. I would be looking at B to C garden apartments 40+- years old. I was thinking that the market rent is fairly easy to obtain, and once I do enough research of similar comparable properties operating expenses I could use a ratio to get close to the NOI and thus determine if the property/deal deserved the greater time and effort necessary for full due diligence.

Please keep you comments coming they are great......