What Small Apartment Owners Get Wrong About Selling

I talk to apartment owners all the time who are shocked when they hear what I’d actually pay for their building. And it’s not because the number is low. Sometimes it is, sure. But mostly it’s because they’re thinking about it wrong.

Here’s the biggest mistake: pricing off the GRM someone told them about.

“My buddy sold his building for 10x gross. Mine grosses $120K. So it’s worth $1.2M.”

That’s not how this works. Gross rent multipliers ignore expenses. And in multifamily, expenses can vary wildly. Insurance, property taxes, water and sewer (if you’re paying it), maintenance, property management, vacancy. Two buildings grossing the same amount can have completely different NOIs. And NOI is what drives value.

A real example

I bought a 12-unit in Fayetteville a while back. Owner was collecting $84K gross. Not bad for the area. But his expenses were eating him alive. Insurance had doubled since he bought the property. He was paying water and sewer on all units. Turnover was constant because he hadn’t updated the units in 15 years. His actual NOI was closer to $32K. At a 7.5 cap that’s a $425K building. He wanted $650K. We closed at $480K after some back and forth. Once I renovate and bump rents, the math will work. But I’m not paying for the future version of his building.

Deferred maintenance adds up fast

Roofs on multifamily are expensive because you’re usually dealing with flat roofs or modified bitumen. $10-15/SF. On a 10,000 SF footprint that’s $100K-150K. Parking lots, same deal. Windows, exterior paint, balcony repairs if you’ve got them. Old plumbing. Galvanized pipes in a 1970s building? I’m pricing in a repipe.

Related: Industrial Property Insurance

The management problem

A lot of small apartment owners are self-managing. Collecting rent, dealing with maintenance calls, handling move-ins and move-outs, sometimes doing evictions themselves. And they don’t factor their time into the expenses. But a buyer will. Because I’m going to hire a property manager at 8-10% of gross. That comes straight off the NOI.

I see a lot of owners in Rock Hill and Wilmington sitting on 8-20 unit buildings they bought decades ago. The properties have appreciated a ton but the cash flow might not be great because expenses have caught up. And they’re tired. The building’s running them instead of the other way around.

What I’d suggest

If that sounds familiar, here’s my advice: get your actual financials together. Real income, real expenses. Not the version you show your CPA. The one with all the maintenance you paid cash for and the vacancy you don’t want to think about. That’ll give you a realistic NOI and a starting point for what the building is worth.

Or skip all that and just call me. I’ll walk through it with you and tell you where I’d come in. No games. If we’re close, great. If not, no hard feelings.

704-600-3839