Actual NOI extremely low, not supporting asking price

[Anthony King]

I see a lot of multifamily listings that have the price set steictly on proforma numbers. I always hear to set your offer price based on actual rent rolls, T-12, current NOI. Cap Rate, etc. However, I come across a lot of properties that have had the same owner for 20+ years and they haven't raised the rents in a decade or more with 75% occupancy.

To be more specific, I found a 16-unit property asking $1.4mil, with avg actual rents at $429/month and the proforma rents from broker say $800/month. They also have 4 vacant units, for 75% occupancy. Using current/actual numbers I find a .5 DSCR, and a 2% cap rate.

How do you price a home like this when actual performance supports a much lower offer price, but the potential is there to support the asking price? Of course the owner holds all the cards so I don't see how offering half of asking helps me acquire one of these properties. Do you pay for potential? Do you meet them in the middle?

[Russell Brazil]

If the buiding was completely vacant, the NOI would be zero. Does that mean the building would be worthless? Of course not.

Valuing the property based on current NOI and the current cap rate is just 1 of many ways to value the property.