Guidelines to calculate the value of an apartment building in Canada
When calculating the preliminary value of your building, there are a number of tools you can use, but you should be careful using or inputting wrong or outdated information. This will give you the wrong price. The condition of your building and its location must be taken into account when producing any final adjusted price.
For example, let’s say you have recently redone your roof, replaced the windows, and completed some unit renovations. These capital item improvements will reflect positively in your final price. On the flip side, if there are capital items that need to be done to prevent any future damage — such as an aging roof that is starting to leak — this will have a negative impact on your final price.
An experienced broker can identify upsides in your building, and these upsides should be reflected in the final adjusted price. Always listen to your broker, as you do not want to leave profit on the table or have the building not sell.
Figuring out what your building is worth is a pretty straight forward process, as long as you follow these guidelines:
- Use the correct financial information about your property. This gives you a snap-shot of the present value of your building. You want to know what your building is making and costing today rather than a year ago, because a reassessment could cost you.
- The revenue you could list could be last year’s revenue, or this month’s rent rol multiplied over twelve months. One is better than the other.
- Remember your vacancy rate. Should you use the CMHC data or the actual vacancy of the building? How are your capital costs accounted for? Many people like to expense their capital work and show and operating statement with lots of expenses, limiting the government’s tax grab. This is an understandable move, but one which will hurt you tremendously when it comes time to valuing your building, if you do not make the necessary adjustments.
- Learn about your competitors. Determining what your building is worth requires knowledge of apartment buildings, the local submarket, and brokers who are active in the marketplace. It requires you to understand the prevailing cap rates.
- Or, call a broker.
How SVN Rock Helps
Typically, a seller comes to us with a lot of equity in his or her building. Typically, his initial thought is to sell and take the cash and do something with it. Consulting with us, he may learn that it is better to refinance the building and keep it. This way, he doesn’t pay any capital gains on his sale, and he can take his cash and distribute it as he wishes.
In another example, we had a lawyer and a local businessman who had obtained a piece of land and had all the approvals ready to build an apartment. When they came to us for advice on how to move forward, we looked at the local real estate market, and then we looked at the lawyer and the businessman themselves. They were both between 35 and 40 years old. They were not interested in immediate cash flow but long term appreciation of their investment. We saw that if they locked into a 15-20 year amortization period, they could be free and clear with their profit before their 55th birthdays. They discovered that their investment shouldn’t be all about cash on cash returns.
At SVN Rock Advisors, we do more than just brokerage. We consult with our clients and help them make the right decision. At SVN Rock, we realize that brokerage comes with relationships and that good relationships build the best business.
To find the market value of your building, contact our industry valuation experts.