class="MsoNormal" style="background: white; margin: 6.25pt 0.5pt 0pt 0in; line-height: 12pt; text-align: justify; mso-line-height-rule: exactly; mso-pagination: none; mso-layout-grid-align: none">The most common way of determining value in multi-family residential buildings, and in most commercial and industrial buildings as well, is by multiplying the rent. Typically, a GIM for gross income multiplier) is used. For example, if the GIM happens to be 12 and the gross annual income from rents for a project is $150,000, then the approximate purchase price should be 51,800,000. (just multiply 5150,000 times 12.)

What should be obvi­ous is that if you can raise the rent and the multiplier stays constant, you can increase the value of the property. For example, if you buy the building for 51.8 million and then double the rents to $300,000 annually, when you apply the GIM again, you come up with a figure of $3.6 million. Thus, for savvy investors an important evalua­tion of a property’ is to see whether or not the rents can be raised. Many a small fortune has been found by purchas­ing a building in which the tenants were paying rents that hadn’t been raised in years and were well below market.

A new investor buys the property, raises the rents to mar­ket price (which may involve replacing some tenants), and then resells for a healthy profit. Of course, if rents are initially low, it’s important to determine why. Sometimes it can be because of a big detracting feature, in other cases the property may be run down and need maintenance and repair. (Of course, yet another way to profit is to buy an older “fixer-upper,” do the work, raise the rents, and resell at a profit.)