How do you value a multifamily property?
Multifamily is valued the same way as other income property — on the income it produces. Calculate net operating income, then divide by a market cap rate to get value. Buildings with five or more units are valued this way; smaller 2–4 unit properties often lean on comparable sales like homes. Rents, expenses, and occupancy drive the number.
Apartments are valued on income
For a stabilized apartment building, value follows the same logic as any income property: figure the net operating income, then divide by the market cap rate.
| Net operating income | $140,000 |
| Market cap rate | 7.0% |
| Value ( $140,000 ÷ 0.07 ) | $2,000,000 |
The 5-unit line matters
There’s an important dividing line. Five units or more is valued as commercial income property (NOI ÷ cap rate) and financed with a commercial loan. Two-to-four units are usually valued on comparable sales — like a home — and can often use residential financing. Know which side of that line a property sits on before you value it.
Building the NOI for apartments
Start with gross potential rent (every unit at market), add other income (parking, laundry, pet and storage fees), subtract vacancy and credit loss, then subtract operating expenses — taxes, insurance, utilities, management, repairs, and turnover. What’s left is NOI. Apartments carry real operating costs, so scrutinize the expense ratio rather than trusting a seller’s slim number.
What moves the value
- Rent growth and occupancy — the top line, and the easiest lever to model.
- Expense control — every dollar of durable expense savings raises NOI, and value moves as a multiple of it.
- Value-add — renovate units, raise rents, and you force NOI (and value) up. This is the core apartment investment play.
- Market cap rates — set by demand and interest rates, and applied to your NOI.
Investors also use quick screens like price per unit, price per square foot, and the gross rent multiplier — but those are shortcuts. The NOI-and-cap-rate approach is the real valuation.