Evaluate apartment building in under 5 minutes

Let’s start with a case that could happen to you today:

Imagine an acquaintance sitting next to you in a café and saying: “Someone here in the street wants to sell an apartment building, I knew the old lady, her son is now looking after it. I’ll ask about it for you.” A day later, you receive the figures on WhatsApp: 240,000 euros annual rent, purchase price is said to be 8.5 million, A-location. Sounds exciting – but is it really a good deal?

The important thing is that you only need two figures – the purchase price (PP) and the annual net cold rent (ANR). Once you have these, you can immediately calculate the purchase price factor and the yield. Both are the most important key figures for recognizing whether an investment makes sense or not.

Another tip: Whether you’re looking for a return on investment or a purchase price factor, use my free real estate calculator on Immobilien Guru.

Stream here for free – the fastest real estate valuation in the world

Calculate purchase price factor and yield

Example:

• Purchase price: € 8,500,000
• JNKM: € 240,000

Now you can get started right away:

Purchase price factor = purchase price / JNKM = 8,500,000 / 240,000 = 35.4

A purchase price factor of 35 means that it takes over 35 years to recoup the purchase price through rental income – without costs, without interest, without risk. Far too long.

How much return are you making?

You can also see this immediately:

Yield = JNKM / purchase price = 240,000 / 8,500,000 = 2.8 %

Sounds okay at first – but is it really?

The magic limit: 5.5% or more – applies at current interest rates of 3.5%

If you work with borrowed capital – and almost everyone does – you have to take the current interest rates into account. Let’s assume you get 3.5% interest. Then realistically add around 2% for maintenance and reserves. That makes a total of 5.5 %.

So you only earn from a return of over 5.5 %

With a return of only 2.8%, you are making a loss month after month – despite rental income.

How much should you pay at most?

Here’s the trick: simply reverse the formula. You want at least 6% return? Then:

Purchase price = JNKM / desired return Purchase price = 240,000 / 0.06 = € 4,000,000

At a yield of 6%, the property should cost a maximum of €4 million. With an 8 % yield, it could even be as low as € 3 million.

Example: You want 8 %

Purchase price = 240,000 / 0.08 = € 3,000,000

Anything above that is not financially attractive – or you have to negotiate the purchase price down.

That’s all you need to remember in the first step, with a quick assessment from your smartphone or notebook! Are you getting an offer? Ask for the address, purchase price, JNKM (renovation status, rental status, …) – then you can evaluate quickly and the seller can sell their apartment building quickly.

Conclusion: “Only 2 numbers decide” – to put it simply

All you really need:

• The annual net cold rent (JNKM)
• The purchase price

Then compare that with the current financing costs and the 2% maintenance buffer. From a return of 5.5 %, you are in the black – anything less is a risk or a hobby.

Formula for your everyday life

Desired yield / JNKM = maximum purchase price

Keep this formula in mind – you’ll need it more often when you’re checking real estate offers. It will tell you in seconds whether a property is suitable or not. And even better: you can immediately make the seller a realistic offer.

Is 8.5 million a good deal?

I went into this in detail on immobilien-erfahrung.de, you can read about it again here: The difference between yield and investment properties.

The difference lies in the focus: with an investment property, what counts is what comes into your account each month – i.e. a positive cash flow from rental income, usually in B locations and C locations. With an investment property, on the other hand, you focus on long-term value appreciation and sales proceeds – usually in A-locations such as Berlin, Cologne, Düsseldorf & Co.

You want direct cash? The first option brings you income directly. Do you want more cash in the long term? The second requires patience, capital and market knowledge – in return, you can expect a big profit later on.

Even better:

If you buy cheaply in an A-location, all the better Cash flow + long-term cash = top class. Buy, upgrade, increase rent, increase value.

That’s it. This is how you evaluate extremely quickly. Good luck with your investment!

Your purchase price offer therefore always depends on your personal goals: Do you need / want operational or strategic cash.

What would this property with a net annual rent of 240,000 euros in an A-location be worth to you?

More tips from the field?

Do you want to regularly recognize good deals, make faster decisions or simply learn from my experience? Then browse through the blog or read the most important articles on the topics – step by step, from practice, for investors.

I have explained these topics to you in detail:

• Valuate apartment building
• Calculate purchase price factor
• Tip: My purchase price factor calculator
• Estimate returns correctly
• Financing with leverage

You want to sell or have questions? Then write to me – I’ll be happy to help you.

• Contact us now
• Purchase profile

These 5 factors determine the value of the apartment building

Tip in advance, I recommend my guide:

• Valuate apartment building

Decisive for the value are:

1. Real estate location (macro and micro location)
2. Property and defects (condition)
3. Types of use
4. Tenants and rental agreements
5. Potential

Quickly explained:

Real estate location: Berlin, Wuppertal or a village in the country?

Location is known to be a decisive factor in real estate valuation. Both the macro-location (regional and city-wide factors such as economic situation, infrastructure and development prospects) and the micro-location (immediate surroundings of the property, neighborhood, access to public transport) are taken into account.

Here is a quick offer check on ImmoScout24:

• Rudow, Berlin – 1,149,000 € / for 355 m² living space – A-location
• Oberbarmen, Wuppertal – 629.000 € / for 456 m² living space – B-location
• Wusterhausen/Dosse (Brandenburg) – € 128,000 for 305 m² living space – C-location

Berlin and Wusterhausen are ~ 100 km apart, the purchase price differs by a factor of ~ 10. The location has this major effect on the property value.

Want to learn more? Read my guide here:

• Real estate location

Condition of the property

The condition of the apartment building plays a key role in the valuation. Aspects such as year of construction, building fabric, need for renovation and modernization as well as energy efficiency are taken into account. A well-maintained and modernized building can have a higher value than an older property in need of renovation.

More on years of construction and defects:

• Property and defects

Types of use

The various possible uses of the apartment building also influence its value. Is it a purely residential property or are there also commercial units? Are there potential development opportunities, e.g. through conversion or extension?

Tenants and rental agreements

The quality of the tenants and the long-term stability of the rental agreements are decisive factors for the value of an apartment building. A stable tenant mix and long-term rental agreements can increase the attractiveness of the property and thus increase its value.

Potential of the apartment building / surroundings

Finally, the potential of the apartment building is taken into account. This includes possible increases in value through planned developments in the surrounding area, through modernization measures or by optimizing rental income.

Overall, determining the value of an apartment building is a complex task that requires a comprehensive analysis of various factors. A professional valuation by a surveyor or real estate expert may therefore be advisable in order to determine the realistic market value of the property.

If you would like further information on the subject of multi-family house valuation or require professional support, I will be happy to assist you. Write to me without obligation: Contact.

A little reminder, I recommend my guide:

• Valuate apartment building

Market value: Sales price for house & apartment

Let’s start with the 2 most important questions:

What does market value mean?

The market value is the price that can be realized in the ordinary course of business within the specified time frame in accordance with the legal circumstances and actual characteristics, the other properties and the location of the property or the other object of the valuation.

In 2004, the term “market value”, which is used throughout the EU, was added to the definition of market value in Section 194 of the German BuildingCode (BauGB). The market value is therefore an estimate of the price that can be achieved on the market. The market value is generally used for the sale and purchase of land and buildings. It may also be necessary to determine the market value in the event of foreclosures, tax assessments by the tax office, divorces and inheritances .

Where can I find the market value?

You won’t find the market value in a list, it has to be calculated using the typical valuation methods – more on this in a moment.

Determining the market value: How do you calculate the market value?

The market value assessment refers to the macro-location (city/region) and micro-location (immediate surroundings of the property) of the property, its section, size and any existing land charges that may reduce the value. In accordance with the BauGB, the market value is not a permanently fixed value, but refers to the reference date stated in the appraisal. It is possible that the market value may change significantly over a certain period of time.

The market value quantifies the value at the time of valuation. The market value appraisal takes the following points into account:

• Material value of the property, if developed
• Nature and location of the property (size, type of development)
• Legal circumstances (e.g. land register, monument protection)
• Other objects of the valuation

But:

In reality, however, market demand has a decisive influence on the value of your property.

The demand for real estate and the features sought vary greatly from region to region. Just think of A-locations such as Munich and Berlin, where the location plays a major role in the market value.

Documents for determining the market value

The following documents are generally evaluated for the valuation of real estate sales:

• Land register extract
• Building plans, floor plans, sections
• Building description
• Site plan and parcel map
• Calculation of living space
• Energy certificate

For condominiums, the following are also required:

• Minutes of the last three owners’ meetings
• Business plan
• Declaration of division (land register)
• Housing benefit statement

For income-producing properties, these must also be submitted:

• Operating costs
• Rental listings
• Rental agreements

Rights and encumbrances must also be viewed:

• Notarial deeds
• Special registrations (rights of way, residential rights, etc.)

Weighting of criteria for market value

Particular weight is given to the location and the expected future risks of the property. The risks are mostly modernization risks, such as the costs to be expected due to a renovation backlog. The most expensive maintenance measures, which generally include the roof, cellar, windows and heating, are also assessed. The type of house is also assessed. A building built before 1945 is an old building, after 1945 it is classified as a new building. The exterior design, floor plan, garden, façade, room layout and lighting conditions are also taken into account.

Factors such as location, balcony and attractiveness for the target group play an important role in the rentability of the property. Other factors included in the valuation are, for example, an elevator and the property’s fixtures and fittings:

• Plot area (proportionate living space or total area)
• Living space according to the Living Space Ordinance (WoFIV)
• Garage, underground garage, parking spaces (existing renovation risks)
• Basement additionally usable or e.g. renovation backlog in the basement
• Demographics for the property location
• Property type (commercial, residential, care, listed, other special forms, mixed property)

Valuation: 3 valuation methods

All important information on the valuation of real estate sales and the other valuation procedures clearly summarized for you:

Income capitalization approach: Breakdown into market value & building income value

The income capitalization approach divides the property into the market value of the land and the income value of the building. This includes rental income, maintenance costs and the costs of managing the land and building. The rental income less management costs and the land value including interest are therefore compared.

Material value method: Value for the new construction of a property

In the asset value method, the market value of the land is first determined using the standard land value, after which the building asset value is added. The real value of the building is calculated from the building production costs less any age-related reductions.

The tangible land value (market value of the land) and the tangible building value are added together and multiplied by a tangible value factor. The calculation of the asset value factor depends on the type of building, the provisional asset value and the standard land value. The total tangible asset value calculated in this way indicates the financial resources that would be required to rebuild the property.

Comparative value method: Comparison with similar properties

The comparative value method compares your property with similar properties. It is used in particular when selling condominiums and residential buildings. The comparative value can also be determined for undeveloped land.

Only properties in similar locations and with a comparable layout are taken into account in the comparison. The properties included in the valuation should be in the immediate vicinity of the residential property. The comparative value method is considered to be particularly realistic. It is often used to determine the value of properties, as the locations are relatively comparable regionally.

Valuate property

House valuation, apartment valuation, what do you have to pay attention to for a good sales price? You can find my tips here:

• Valuate property

Usable space, living space and floor space: what is the difference?

Let’s start very simply. You will encounter these values in exposés, in advertisements, in every real estate search. That’s why it’s important to know the difference.

3 Surfaces you will often encounter:

1. Footprint
2. Useful area
3. Living space

The order is chosen specially. Because as you can see here, you come from the 1) floor space to the 2) usable space to the final 3) living space.

Tip. At the end of the article you will also find extra infographics, for clarification

Since there is still a simple “formula” for calculation on the Internet, here in quite simply explained.

Simply expressed as a “formula”:

• Floor area = usable area + circulation area (such as staircase) + functional area (such as boiler room)
• Usable area = Usable area (living area – basement – attic – …)
• Living space = living space (living room + bedroom + …)

Calculate step by step

Let’s look at the process again step by step:

Footprint: Step 1 + Definition

That is, the 1) floor area includes the entire usable area, as well as corridors and staircases (circulation area), and garbage or boiler room (functional area).

This includes all floor areas:

• Living space
• Attic, basement, garages and balconies
• Staircase, corridors, … (so-called traffic area)
• Garbage room, boiler room, … (so-called functional area)

This does not include:

• Plot

Calculate:

Floor area = usable area + circulation area (such as staircase) + functional area (such as boiler room)

Infographic:

Example: All built-up areas, covered areas and upper floors.

Usable area: Step 2 + Definition

After the floor area, consider the 2) usable area, that is, what can really be used in the house or apartment building (for condominiums).

These include, for example:

• Attic
• Basement
• Garages
• Storage rooms (outside the living space)
• Balconies

This no longer includes:

• Staircase, corridors, … (so-called traffic area)
• Garbage room, boiler room, … (so-called functional area)

Calculate:

Usable area = Usable area (living space, basement, attic, …)

Infographic:

Example: Staircase is part of the usable space.

Living space: step 3 + definition

Only then you come to the 3) living space. The living space then indicates the actual habitable space of the property.

Typically only includes:

• Living rooms (bedroom, kitchen, bathroom, living room, etc.)
• Balconies, loggias, terraces and roof gardens are counted at 25%, at most at 50% (§4 WoFlV)

Calculate:

Living space = living space (living room + bedroom + …)

Now you know the difference.

Infographic:

Example: Living room of a condominium.

Summary: Technical terms as infographics

Once again quickly summarized, the areas, simplified summary with infographic.

1. Total area (use + traffic + function)
   1. Traffic area (staircase, corridors in the house)
   2. Functional area (boiler room, garbage room, etc.)
2. Usable area (everything except traffic area / functional area)
3. Living space (usable space that is not occupied, example: cellar)

Total area / floor space in the house

Use + traffic + function give the total area.

Usable area in the house

Everything except traffic area / functional area results in the usable area.

Living space in the house

Usable space that is not occupied, example: basement, is called living space.