Am I thinking about this right? - apartment refinance

[Josh Robbins]

Hi All, Newbie question for you all... I'm looking at a 6-unit right now and I believe there's a value add opportunity as the landlord currently pays about $8k annually in oil and electric. My plan would be to purchase the property, split the utilities and have the tenants pay them. Then refinance based on an NOI that would be $8k higher. Here's my question...If the prevailing cap rate is 8% then pushing this $8k to the tenants would increase the value of the property by $100k right? Upon refinancing, assuming 75% LTV, I could "cash-out" $75k? Just want to make sure I'm not missing anything before I make an expensive mistake. Thanks

[Chris Soignier]

What's the prevailing standard in your submarket?   Note that you'll need to wait until leases renew to implement this, and you may need to budget for increased vacancy, as some tenants may choose to move when faced w/ higher net living expenses there.

Also, be sure you're not planning to pass on the energy costs for common areas (security lighting, etc., though I wouldn't expect a 6 unit to have a leasing office, laundry, and pool).

But yes, if you increase NOI by $8K, you s/b able to net out ~$75K @ an 8 cap market rate.