This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
In estimating the income of an apartment house, there are five points that may be considered: First, the light and air; second, size of rooms; third, arrangement of rooms; fourth, equipment of the apartments and house in general; fifth, material and workmanship used in the building. These features may be considered to rank in importance in the order as put above. The most important thing to the tenant in determining how much rent he is going to pay is the light and air in the rooms; next, the size of the rooms, and then the arrangement of the rooms. All things considered, if these three points be favorable, the equipment and construction will count for much less to the tenant than the former qualifications. But, as before outlined, these latter points make a material difference in the cost of maintenance, particularly the last, and it may be readily seen that the house which brings $5,000 a year income, with a cost of $3,000 to maintain, will return a better net income than the house which brings $5,500 a year, with a cost of maintenance of $4,000.
So long as the apartment which the tenant occupies presents a pleasing appearance, so long as he obtains sufficient heat, hot water service, etc., he will not insist on a reduction in rent from what he originally paid. But the poorly built house will cost the owner a great deal more to maintain in its original condition than the well-built one will. It should therefore be concluded that, in estimating the value of improved property, the question of income and expense should be considered together as part of each other.