It's the question I get more than any other. Sometimes it comes from an owner who's thinking about selling. Sometimes it's someone who inherited a building and has no idea where to start. Sometimes it's just curiosity. Whatever the reason, the answer is never as simple as checking Zillow.
Online valuation tools were built for single family homes. They look at recent comparable sales, square footage, and location. That works fine for a 3 bedroom in Mar Vista. It does not work for a 12 unit apartment building in Santa Monica. Not even close.
Why Apartment Buildings Are Valued Differently
A single family home is priced based on what similar homes sold for nearby. An apartment building is priced based on what it earns. That's the fundamental difference, and it's why most online estimates miss by 20% or more on multifamily properties.
The metric that matters most is Net Operating Income, or NOI. That's your gross rental income minus your operating expenses. Taxes, insurance, maintenance, management, utilities, vacancy. Everything except your mortgage payment. Once you know your NOI, you divide it by the prevailing cap rate for your submarket and building class to get your value.
Simple formula: Value = NOI / Cap Rate
A building producing $150,000 in NOI in a market where cap rates are 5.0% is worth $3 million. If cap rates tighten to 4.5%, that same building is worth $3.33 million. If they widen to 5.5%, it drops to $2.73 million. Same building, same income, $600,000 swing based entirely on the market.
This is why you can't just Google it.
The Three Numbers You Need to Know
Before any valuation conversation, get these three numbers together. They're the foundation of everything.
1. Your Actual Rent Roll
Not what you could charge. What you're actually collecting, unit by unit, right now. Include any concessions, any vacant units, any below market leases. A building with eight units at $1,800 and four units at $1,200 because long term tenants have been there for 15 years tells a very different story than twelve units all at $1,800.
That gap between current rents and market rents is called the rent delta, and it can be the single biggest driver of your building's value. A buyer will pay a premium for upside they can capture through natural turnover. But they'll only pay for it if they can verify it with comparable market rents in your specific neighborhood.
2. Your Operating Expenses
Real numbers, not estimates. Pull your actual property tax bill, your insurance premium, your utility costs, your maintenance spending over the last two years. Buyers and their lenders will verify all of this during due diligence, so there's no point in estimating low.
One thing I see constantly: owners who self manage don't account for management cost. Even if you're managing the building yourself, a buyer will underwrite a 4% to 6% management fee because that's what they'll pay. Your NOI needs to reflect that reality.
3. The Cap Rate for Your Submarket
This is where most owners get it wrong, because cap rates vary dramatically by location, even within the Westside. A 10 unit building in Santa Monica trades at a very different cap rate than the same building in Westchester or Palms. Rent control laws, tenant protections, building age, and neighborhood demand all factor in.
Right now, cap rates across the Westside generally range from about 4.5% for premium Santa Monica assets to 5.5% or higher for older buildings in secondary locations. But these numbers shift quarter to quarter based on interest rates, transaction volume, and buyer demand. Using last year's cap rate for today's valuation is a mistake I see other brokers make regularly.
What a Real Broker Opinion of Value Looks Like
A proper BOV isn't a one page letter with a number on it. It's a full underwriting of your property against current market conditions. Here's what goes into one when I prepare it for a client.
First, I pull your actual rent roll and compare every unit to current market rents for your specific building class and neighborhood. Not citywide averages. Actual comparable units within a few blocks of your property.
Second, I reconstruct your operating expenses using your actuals and normalize them against market standards. If your property taxes are about to reset due to a sale, I account for that. If your insurance spiked this year, I look at whether that's an anomaly or the new normal.
Third, I analyze every comparable sale in your submarket over the last 12 months. Not asking prices. Closed transactions. What actually traded, at what price per unit, at what cap rate, and what the rent profile looked like. This is where having 19 years of Westside multifamily transaction history matters. I've sold buildings on many of the same streets your building sits on. I know what buyers paid and why.
Finally, I factor in your building's specific characteristics. Unit mix, parking, laundry income, capital improvement history, rent control status, and any deferred maintenance that a buyer would price into their offer. Two buildings on the same block with the same unit count can have very different values based on these details.
Common Mistakes Owners Make
After nearly two decades of doing this, I see the same mistakes repeatedly.
Using the tax assessor's value. The assessed value on your property tax bill has almost nothing to do with market value. In California, Prop 13 means your assessed value could be a fraction of what the building would sell for today. I've seen buildings assessed at $1.2 million that sold for $4 million.
Anchoring to what a neighbor got. "The building down the street sold for $400,000 a unit." Maybe it did. But was it renovated? Were all units at market rent? Did it have parking? Was the buyer paying a premium for a 1031 deadline? Every deal has a story behind the number. Without knowing that story, the comp is misleading.
Waiting for the perfect market. There's no perfect time. There's your situation, your goals, your tax position, and the current market. The owners who do best are the ones who make decisions based on their own financial picture, not on trying to time a cycle.
Getting a valuation from someone who doesn't specialize in your market. A residential agent who sells houses and occasionally lists an apartment building is not qualified to value multifamily. Neither is a commercial broker who works downtown or in the Valley. Multifamily valuation on the Westside requires submarket specific transaction data, and that data only comes from doing deals here consistently over many years.
What Owners Usually Do With This Information
About half the owners I prepare valuations for decide not to sell. And that's perfectly fine. Knowing what your building is worth doesn't obligate you to do anything. But it does give you information you can use.
Some use it to evaluate a refinance. Some use it for estate planning. Some find out they have significantly more equity than they realized and decide to do a 1031 exchange into a larger asset. Some discover that deferred maintenance is dragging their value down and invest in improvements that will pay for themselves when they eventually sell.
The point is that the number matters regardless of what you do with it. An apartment building is probably the largest asset in your portfolio. You should know what it's worth with the same precision you track your other investments.
Get Your Number
I prepare broker opinions of value for Westside apartment building owners at no cost and no obligation. It's confidential, it's based on real transaction data, and it takes about a week to complete properly. If you've been wondering what your building is worth, request your free valuation here or call me directly at 424-377-6002.
