Valuing a multifamily property in Los Angeles requires understanding how buyers actually underwrite — not just running a spreadsheet.
The Income Approach
Most LA multifamily trades on the income approach. Buyers look at current net operating income (NOI) and apply a market cap rate to arrive at value.
The formula is simple: Value = NOI ÷ Cap Rate
But the inputs are where skill matters.
- Is the rent roll at market, below market, or above market?
- Are expenses normalized, or is the owner self-managing and underreporting?
- What's the deferred maintenance exposure?
A property with $100,000 NOI trading at a 4.5% cap is worth roughly $2.22M. But if the rents are 20% below market and the roof needs $80K, the real value is lower.
Cap Rate Analysis
Cap rates in LA vary dramatically by submarket:
- Santa Monica / West LA: 3.5–4.5%
- Venice / Mar Vista: 4.0–5.0%
- South Bay / Inglewood: 4.5–5.5%
- San Fernando Valley: 4.5–5.5%
Lower cap rates mean higher prices per dollar of income. Buyers accept lower yields in prime locations because of rent growth potential and lower perceived risk.
Gross Rent Multiplier (GRM)
For smaller buildings (2–4 units), GRM is often used as a quick check.
GRM = Price ÷ Gross Annual Rent
In West LA, GRMs of 14–18 are common. In less prime areas, 10–14. GRM is a rough guide, not a substitute for full underwriting.
Rent Control's Effect
This is the LA-specific factor that trips up out-of-market buyers. If a building is subject to rent control (AB 1482, local ordinances, or Costa-Hawkins limitations), buyers will underwrite more conservatively.
Key questions buyers ask: - What's the current rent vs. market rent gap? - How fast can I close that gap legally? - What's the tenant turnover rate?
When we value properties, we model both the "as-is" value and the "stabilized" value — what the building is worth once rents reach market. This gives sellers a clear picture of their leverage and timing options.