How to calculate NEW/Future value of apartment building?

[Jack B.]

I understand the NOI/Cap rate formula for valuing how much a property is worth paying for, but how does this formula work for calculating the future or NEW value of a property after 5 years of rent increases?

Since the property rents have gone up and the commercial nature of it values it based on NOI divided by the cap rate, how do you get the new cap rate to divide by when the value itself is based off the NOI/cap rate?

If I buy a 2 million dollar apartment complex with an NOI of 60K, that's a cap rate of 3% and we know the value of the building is really 2 mil.

But if after 5 years my NOI is now 120K, if I used the purchase price that I paid to calculate the cap rate, the cap rate is now at 6% so when I divide the NOI by the cap rate I'm still getting the 2 million dollar value.

Or are you supposed to use comparable sale cap rates to divide your NOI by when you go to sell?

Basically I'm trying to calculate whether I'd be better off selling 2 of my rental houses and buying 5 new houses with the equity or using it as a down payment on a 2 million dollar apartment complex. It doesn't seem that the above formula lends itself well to determining what the future value of an apartment building would be after 5 years of rent increases....

ETA: I found this article on the web that seems to agree with me that you must look at comparable sales when identifying what cap rate to use on the property when you go to sell. So in a way, commercial real estate is still driven by supply and demand pricing wise, not just NOI/Cap rate, since the demand and supply will affect the cap rate...

https://www.thebalance.com/calculating-property-value-with-capitalization-rate-2866800

[David Thompson]

I see experienced syndicates use sensitivity analysis to project exit values in 5 years as an example. Min 50 basis points higher at exit is what I see a lot. Buy at a 5.5 cap, exit at a 6 cap. Project out conservative assumptions in the model more to market norms and come up w/your NOI in year 5 / divide by the exit cap should be a good starting point. Now, the sensitivity analysis should show the exit value along this spectrum from a 5 cap to say a 7 cap and see what that does to your IRR and can you live w/that. Keep in mind you don't have to sell at a defined point (say 5 years). You should have more control over when to exit to get the best price at sale.