Proforma vs Actual NOI to calculate Purchase Price

[Jason Kaye]

I am currently evaluating some small commercial multifamily properties (6 units). My understanding is that the pricing of a commercial property is based upon the Net Operating Income (NOI) and the Cap Rate.

I have found a couple of properties that I am interested in listed on Loopnet. They appear to be underperforming, mismanaged properties that I believe would be perfect to implement the BRRRR method on.

The LoopNet listing for one has the property for sale at $400,000 based on a proforma NOI of $29,000 and a cap rate of 7.36. The actual NOI listed for this property is ~3,000 for 2016. Based on this I would expect the property to be worth about $22,080 at the above cap rate of 7.36.

I am curious how to approach this scenario from a high-level perspective. Am I right in using actual numbers to price this property? If I were to make an offer should it be at this price? Should it be closer to the value based on proforma numbers? Somewhere in the middle?

**Disclaimer** 

I am not making an offer based on just these numbers. I will investigate more deeply why performance is currently so far below proforma. What type of work would be involved to get it closer to proforma, etc.