The Income Approach, Briefly

The standard way to value a multifamily building is to divide its Net Operating Income by a market capitalization rate — see our full multifamily valuation guide and cap rates explained for the methodology. This approach values the building for what it earns today. It's the right lens for a stabilized, well-tenanted building in a neighborhood where zoning has stayed roughly in line with what's built. It is often the wrong lens for an older building sitting on land that could support significantly more density than currently exists.

When Land Value Overtakes Income Value

Three conditions tend to push a multifamily property's development value above its income value:

  • Unused FAR — your building uses only a fraction of what current zoning allows. A four-story walk-up in a district zoned for 12 stories is the classic setup.
  • Recent density increases — the 2024 repeal of the state's FAR cap, the City of Yes Universal Affordability Preference, and several major neighborhood rezonings approved through 2025 have expanded what many sites can support since your building was last evaluated for its zoning. See our rezoning and density guide to check whether your site is affected.
  • A deliverable or near-deliverable site — market-rate tenants on short-term leases, or a building with few or no rent-stabilized units, can be delivered vacant on a reasonable timeline, which developers will pay a premium for relative to a fully occupied, rent-stabilized building.

The Tax Incentive Effect

Here's the part most owners underestimate: the price a developer can pay for your land depends heavily on the tax treatment of what they plan to build there. A rental project that qualifies for 485-x carries a substantially lower long-term property tax burden than an unincentivized new building — which directly increases the revenue a developer can underwrite, and therefore what they can afford to pay for your site. This is a major reason land buyers can currently outbid income buyers for many older multifamily properties: the buyer isn't valuing your building's current rent roll, they're valuing what a 485-x-eligible building on that same lot could generate.

If your building sits on a lot with a significant commercial or mixed-use component, or if it's part of a larger predominantly non-residential structure, 467-m conversion economics may apply instead of new-construction economics — worth checking both.

The Rent-Stabilized Discount, in Reverse

Rent stabilization is usually discussed as a value-suppressor — and it is, for exactly this reason. A multifamily building with rent-stabilized tenants is far harder and slower to deliver vacant, which discounts its development-site value by 30–60% relative to an equivalent vacant site. But the flip side matters just as much for the comparison in this article: a multifamily building with mostly free-market, short-lease tenants is a much cleaner development-site candidate, and its land value case is correspondingly stronger. See our rent stabilization guide for the full framework.

A Simple Illustrative Comparison

Consider a hypothetical 20-unit, four-story walk-up on a 5,000 SF lot, generating $600,000 in annual gross income against $220,000 in expenses — a $380,000 NOI. At a 5.5% cap rate, that's roughly a $6.9 million income value.

Now suppose that same lot sits in a district with FAR 6.0, zoned for a building nearly three times the size of what's there today — 30,000 buildable square feet. At a conservative $300/BSF land value benchmark for the submarket, that's a $9.0 million indicative land value before even running a full residual land value calculation incorporating current 485-x-driven revenue assumptions (see our step-by-step valuation guide for that methodology). In this illustrative scenario, the land is worth roughly 30% more than the income stream — and that gap tends to widen further once a buyer models the tax benefit into their revenue projection. This example is for illustration only; every site needs its own current analysis.

Get Both Numbers Before You Decide

The point isn't that every multifamily building is secretly a development site — most stabilized, well-tenanted buildings in built-out neighborhoods genuinely are worth more as income properties. The point is that you shouldn't assume either way without checking. Before refinancing, listing, or turning down an unsolicited offer, it's worth knowing both your income value and your development-site value — and, if the gap is real, understanding which tax incentive program and which zoning provisions are actually driving it.