INCOME VS COST APPROACH

INCOME VS COST APPROACH Spread value based on achievable rent, Income vs cost to build and rent the units is important to understand. A purchase price or offer must be garnered from a projection of variables. Apartments have a lower cost of capital and wider availability of debt capital. For example, government backed agencies, Fannie Mae and Freddie Mac, will lend on multifamily assets but not on other commercial real estate asset classes. In addition, when looking back at the last recession, generally speaking, multifamily is the asset class that performed the best during the depths of the financial crisis and was the asset class to lead the recovery. People still need a place to live no matter the phase of the economic cycle. The following points must be taken into consideration before getting a clear picture on your spread value: • Revenues: Rents, Parking, Laundry, Storage, Vacancy Rates • Expenses: Construction, Management, Realty taxes, Water and sewer, Utilities, Garbage, R & M, Caretaker, Security, Insurance, Advertising and Leasing, Elevator, License, Landscaping, Total Operating Expense, Operating Expense, Operating Expense Ratio • Cap Rate • Indicated Value: Market Value / SF, Market Value / Suite, Cap Ex

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