How to Calculate Property Value From Rental Income

The most reliable way to value a rental property — especially a multifamily building — is the income approach. Here's exactly how to do it.

Step 1: Calculate Effective Gross Income (EGI)

Start with your Gross Potential Rent (GPR) — what you'd collect if every unit were occupied at market rate. Then subtract vacancy and credit loss (typically 3–5% for stabilized LA properties).

EGI = GPR × (1 - Vacancy Rate)

Step 2: Calculate Net Operating Income (NOI)

Subtract all operating expenses from EGI. Operating expenses include:

• Property taxes (roughly 1.25% of assessed value in California)
• Insurance ($500–$2,000+ per unit annually)
• Property management (6–10% of gross rents)
• Maintenance and repairs ($500–$1,500 per unit annually)
• Owner-paid utilities (water, trash, gas in common areas)

NOI = EGI - Total Operating Expenses

Step 3: Apply the Market Cap Rate

Divide NOI by the prevailing cap rate in your submarket to get estimated value:

Value = NOI ÷ Cap Rate

Example Calculation

10-unit building, $3,000/unit/month in rents:

• GPR: $360,000/year
• Vacancy (5%): -$18,000
• EGI: $342,000
• Operating expenses (35%): -$119,700
• NOI: $222,300
• Cap rate (5.0%): Value = $4,446,000

Want a free valuation for your property? Contact Samimi CRE Advisors for a complimentary analysis.