Price Per Unit for Apartments: What It Does and Does Not Tell You
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Price per unit is an apartment building's purchase price divided by its number of units. A $3,600,000 price for 40 units is $90,000 a unit. It is a fast way to compare buildings and to sense-check an offer against recent sales, but it says nothing about how much income each unit produces, so it cannot tell you whether the price is fair. Sponsors who raise equity with DoorRaise use it to screen deals, then value the building on net operating income (NOI) and cap rate.
This post gives the formula, shows two hypothetical buildings with the same price per unit and different cap rates, and lists the other per-unit and per-foot measures. It builds on our underwriting basics.
What is the formula?
Price per unit = price / units. Price per square foot = price / rentable square feet. Related per-unit measures include NOI per unit, rent per unit and expenses per unit. These per-unit figures are best used together.
A hypothetical comparison
This example is hypothetical, for illustration only. Two 40-unit buildings sell for $3,600,000 each, so both are $90,000 a unit.
| Measure | Building A | Building B |
|---|---|---|
| Price per unit | $90,000 | $90,000 |
| NOI per unit | $5,850 | $4,950 |
| Total NOI (x 40) | $234,000 | $198,000 |
| Cap rate (NOI / price) | 6.5% | 5.5% |
Building A earns $234,000 a year on a $3.6 million price. Building B earns $198,000. At the same price per unit, Building B has a cap rate a full point lower, so an investor buying B pays more for each dollar of income. If B has stronger growth or a better location, that may be worth it, but price per unit alone would not show the difference. Value from NOI: at a 6.5% cap rate, B's $198,000 of NOI supports about $3.05 million, roughly $76,000 a unit, not $90,000.
Why can price per unit mislead?
- Unit size. A building of large units may cost more per unit and less per square foot.
- Condition. A renovated building can price higher per unit than one needing work, and the work has a cost.
- Rents and expenses. Higher rents or lower expenses mean more NOI per unit.
- Location and class. See apartment property classes.
- Loss to lease and vacancy. Income that exists on paper may not be collected. See economic vs. physical occupancy.
How do you use it well?
- Gather recent sales of similar buildings nearby and compute price per unit and per square foot.
- Compute each sale's cap rate where NOI is known.
- Place the subject building next to them on price per unit, NOI per unit and cap rate.
- Adjust for unit size, condition and income.
- Then underwrite the subject on its own NOI, as in how to underwrite a 20-unit building.
Sale data may come from brokers, public records or paid databases, and the quality varies. See our guide to market research sources.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units under Rule 506(b) or 506(c). It prepares the offering documents from the sponsor's inputs, coordinates escrow with Enterprise Bank & Trust, collects investor funds by wire only and handles filings. The deal page shows investors the price, the business plan and the projections you enter. DoorRaise does not verify a seller's or a sponsor's numbers; sponsors must check what they present.
DoorRaise is for apartment buildings with 5 or more units, and sponsors can launch their deal here. Setup is $1,500 (non-refundable), and the administration fee is $5,000 a year from closing.
To get started, create your sponsor page or see the fees.
FAQ
What is price per unit in real estate?
It is the purchase price divided by the number of units in the building.
Is a lower price per unit better?
Not necessarily. A low price per unit can reflect poor condition, weak rents or a weak location. Compare it with NOI per unit and cap rate.
What is price per square foot used for?
It compares buildings with different unit sizes. It is a screen, like price per unit.
How do I get from price per unit to value?
You do not. Value comes from NOI and a cap rate. Price per unit only helps you compare.
Do lenders use price per unit?
Lenders look mainly at NOI, debt service coverage and loan-to-value. See multifamily DSCR loans.
Sources
- Fannie Mae, Multifamily fixed-rate mortgage loans
- 17 CFR 240.10b-5, Employment of manipulative and deceptive devices
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and a CPA about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.