How loan rates move what buyers pay for apartment buildings
A buyer's lender sizes the loan on income, not price. Worked numbers on how each half-point of rate cuts the loan and pushes offers down.
For owners of 5+ unit buildings
What your building is worth to a buyer who has to borrow
Cap rates set the range. Today's loan rates push offers up or down inside it. The worksheet works out both from your own rent roll.
Value from your rent roll
Enter rents by unit type and a year of expenses. You get net operating income the way a buyer's underwriter would count it, and value across a cap rate range.
The price financing supports
The most a buyer can pay while borrowing the full loan-to-value at today's Treasury yield plus a spread you set.
Refinance instead
The loan your income supports today against your current balance, so you can see whether a refinance frees cash or needs a paydown.
Talk to the desk
Send the building to Janover Capital's desk. A person there reads it and replies about refinancing, or about the financing side of a sale.
What changes the number most
Net operating income. A $100 a month rent increase on 32 units adds $38,400 a year before vacancy; at a 6% cap rate that’s about $640,000 of value. Cutting $10,000 of real expense adds about $167,000. The year before a sale is best spent getting rents to market and expenses in order.
The second lever is the buyer’s loan. Fannie Mae’s conventional term sheet sizes loans to at most 80% of value and at least 1.25x debt service coverage, and Freddie Mac’s fixed-rate term sheet uses the same limits for terms of seven years or more. When Treasury yields rise, the coverage test starts to bind before the 80% does, and that pulls offers down. The worksheet uses the 10-year Treasury yield published by the U.S. Treasury each business day.
Selling or refinancing
If the building is worth more than you owe and the income supports a bigger loan, a refinance can return cash without a sale. If it doesn’t, or you’re ready to be done, the worksheet tells you roughly what a buyer can pay. Selling versus refinancing walks through the trade-offs.
Latest guides
What a buyer counts in your NOI, and what they throw out
Owners and buyers rarely agree on net operating income. The adjustments a buyer's underwriter makes to your numbers, with the effect on value worked out.
Sell or refinance your apartment building? How to compare them
A sale ends the risk and can trigger tax. A refinance keeps the building and returns some equity. How to compare the two on your own numbers.
Questions people ask
How do buyers value an apartment building?
By net operating income divided by a cap rate. A building netting $300,000 a year is worth $5,000,000 at a 6% cap rate and about $4,615,000 at 6.5%. Then they check whether a loan at today's rates covers enough of the price.
Where do I find the cap rate for my area?
No government agency publishes cap rates. Brokers and research firms survey them by market and building class. Ask two brokers who sell buildings like yours what similar properties have traded at, and use their range.
Is this an appraisal?
No. It is an estimate from the numbers you enter, not an appraisal and not an offer to buy or to lend. A lender or a court needs an appraisal by a licensed appraiser.
Why does the interest rate change what my building is worth?
Most buyers borrow. When loan rates rise, the same income supports a smaller loan, so a buyer either brings more cash or pays less. The worksheet shows the price where the loan stops covering the full loan-to-value.
Have a question?
Send it to Worth Sheet and we will reply by email.