When a seasoned apartment buyer gets your building in front of them, they don't start with the photos. They start with the math. Within a minute or two, five numbers tell them whether this is worth a serious look or a polite pass. You should know those numbers before they do, because the story they tell is the story you're negotiating against.
Here are the five, in the order a buyer runs them.
- Net operating incomeWhat the building earns on its own
- Cap rateThe yardstick against every other deal
- Price per unitThe submarket sanity check
- Expense ratioEfficiency, and honesty
- Rent versus marketThe upside they get to chase
1.Net operating income (NOI)
This is the engine, and every other number leans on it. NOI is your annual income after operating expenses, but before your mortgage payment and before income taxes. It's what the building earns on its own, independent of how any particular owner financed it or files their taxes.
Buyers care because NOI is what they're actually buying. A clean, defensible NOI (real collected rents, honest expenses, nothing creatively omitted) is the foundation of every offer. If your NOI relies on rents you hope to charge or expenses you conveniently forgot, an underwriter will find it, and trust erodes fast.
The tell: present the number you can prove.
2.Cap rate
The capitalization rate is NOI divided by price: the first-year yield a buyer earns if they pay all cash. It's the yardstick that lets someone compare your building against every other deal on their desk, regardless of size.
A buyer uses it in reverse: they take the cap rate the market is paying for buildings like yours, apply it to your NOI, and land on what they think it's worth. If similar Cincinnati buildings are trading around 7.5%, and your building throws off $200,000 of NOI, they're anchoring near $2.7 million before they've read another line. (Where that cap rate itself comes from is its own story. I wrote about it separately here.)
3.Price per unit
Now the sanity check. Divide the price by the number of units and you get a figure buyers carry around in their heads for every submarket. In a given Cincinnati or Dayton neighborhood, they know roughly what a unit should cost, and yours either fits that band or it doesn't.
Price per unit cuts through a lot of noise. It's how a buyer instantly flags a building as aggressively priced or quietly attractive, and it's the number they'll quote to their partner in one sentence.
The tell: if yours sits above the comparable range, you'd better have the quality or the upside to justify it.
4.Expense ratio
This is operating expenses as a share of income, and it tells a buyer two things at once: how efficiently the building runs, and how honest your numbers are. Most stabilized multifamily runs somewhere in the 40% to 55% range depending on age, size, and who pays utilities.
Here's the part owners miss. If your expense ratio comes in far below the norm, a buyer doesn't get excited. They get suspicious. It usually means real costs are missing, and they'll add them back before they underwrite, which lowers your NOI and your price.
The tell: a believable expense ratio protects your value. An impossibly low one costs you credibility.
5.Rent versus market
The last number is the one that decides whether a buyer leans in. They compare your current rents against what the units would fetch at market. The gap, often called loss-to-lease, is the upside they get to chase.
This one cuts both ways for you. Rents well below market signal opportunity, and a buyer will pay for a clear, capturable runway. But it also means you may be leaving income, and value, on the table today, since your building is valued on the income it produces now.
The tell: knowing your gap tells you whether the smarter move is to sell the upside to a buyer or capture some of it yourself first.
What your five numbers are saying
Taken together, these five tell a buyer whether your building is priced right, run well, and honestly presented, before you've had a single conversation. The good news is that they're knowable in advance. You can run them yourself, see your building the way the other side of the table will, and fix what's fixable before you ever go to market.
See your building the way a buyer will
I'd be glad to prepare a complimentary Broker's Opinion of Value for your property and walk you through all five numbers: what they are, what they signal, and where yours are helping or hurting you. No cost, no obligation.
Request your complimentary BOVThis article is for general educational purposes and is not tax, legal, or investment advice. Figures are illustrative. Please consult the appropriate professional regarding your specific situation.