Cap Rate Based On Pro Forma NOI?

[Matthew Masoud]

Hello BP community,

I'm starting to look for larger multifamily properties.

A common (surprising) trend I'm seeing is that people are selling their properties based on future (proforma) NOI.

How does that make any sense?

Here is a real example I'm looking at now:

A 10 unit property has a current NOI of $84,000. After some upgrades it will have an NOI of $100,000.

Sellers will price the property at the $100,000 NOI rather than the current $84,000 NOI. How am I supposed to make money on a value add property when they are selling the property at the price I'd get after adding the value?!

Is this common or am I just seeing this because this is an on market deal? Should I expect them to sell at current NOI or somewhere in between?

Thank you all.