38 Unit building - opinions anyone?

[TangoWhiskey]

I've been sent a pocket listing for a 38 unit building that on Streetview looks in excellent condition, probably about 5 yrs old. The million dollar question is how much does cap rate change according to age of construction and therefore lower maintenance costs? There must be some value to building condition in lender and CMHC's eyes; obviously you can't have a 40 yr old building generating 100K NOI valuing the same as a new building generating 100K NOI.



These guys don't see a building, they see numbers on a page. How much do they alter cap rate to reflect the risk across buildings and their ages and varying physical conditions?

 

[Thomas Beyer]

A newer building should have higher rents, and as such it should be more valuable.



You would also use slightly lower R&M figures, say $400 to $500/suite/yr instead of perhaps $700.



Otherwise, a 100,000 NOI is a $100,000 NOI.

 

[housingrental]

Deferred maintenance from building to building will also impact - but not 1:1 with cost of it

This varies from location to location / building to building - but you can see a 1%+ difference in cap rate between 5 vs 40 year old

Check sold data for your local market

 

[Thomas Beyer]

[quote user=housingrental]1%+ difference in cap rate
CAP rates are based on assumptions or estimates of future events, which may or may not be accurate, such as R&M, vacancies, PM fees, onsite manager salaries ..



Another metric is price per sq ft or price per unit.



There is no right or wrong here. A newer building is usually more expensive, but will usually command higher rent and lower R&M expenses but also higher taxes. You can make money in both situations at the right price !