PM & CapEx in or out for figuring Valuation???

[Matt Kauffman]

Hey BP gang, 

I'm wanting to step up into the larger multifamily properties and move away from <4 unit buildings. When it comes to running financials on larger properties I know I need to include PM and CapEx expenses on a monthly basis.

However, when I'm reviewing larger properties financials many of them do not include PM or future Cap Ex savings/expenses (saving money back for a rainy day or new roof, or boiler etc...). So i stick them in the financials they provide me for my evaluation of the place. 

However, when you add PM and CapEx savings to the Operating expenses it drops your NOI tremendously and then when you multiply it by the Cap Rate you get a much lower valuation of the property than the listing price.

For Example a 12 unit I'm evaluation is listed for $422K, but my valuation without PM and Cap Ex in the NOI makes it worth about $373K. But if I subtract PM and CapEx from the NOI it only values at $324K. This is a 12% Cap place according to the Broker.

Which is the true valuation for figuring out where to start making offers on the place? Do you include PM and CapEx in the valuation or leave it out?