Results for ‘Real Estate Math’ category

Why developers prefer to build luxury apartments

Here’s a question that’s been popping up all over the place: Why do developers only build apartments for the rich? The answer, as with most things in our business, is in the math. Imagine you can buy enough land to build 10 units for $1MM, or $100,000 per unit. Let’s say you have two options:

Uh-oh… they’re baaaa-aaaccckkkk

We’ve now reached the point in the cycle where brokers describe their over-priced apartment deals as “condo conversion opportunities”. Why would a broker do this? Well, if your client demands a price so high that no buyer could actually achieve any kind of yield on their investment, you don’t really have many options. But, in all

How to value a vacant building

A friend of mine from college called me late last week with an interesting problem: He wanted to know how to value a vacant building he was considering buying. There are two good ways to think about this problem: The first might be thought of as “price per pound“, where we are looking at the

Why every last dollar of rent matters

Sometimes people question why it’s so important to get that last dollar of rent. On a $2800 apartment, does an extra $100/month matter? After all, $100 is only 3.6% of $2800… no a big deal, right? Wrong. Here’s how we think about rent in our business: All buildings are worth some multiple of their total

How low interest rates are changing the multifamily market

Had a quick conversation with a loan broker last night about the loans available on 5+ unit apartment buildings right now. You can now get a 5 year fixed, non-recourse bank loan for 3.62% interest. Let’s take a look at what that means by using the example of a 5% cap deal, which is a

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