Value add multifamily / Post renovation refinance.

[Armando Payano]

Need your help BP,

Analyzing the potential refinancing results of a value add multifamily property. 

Purchase price $1,000,000

Units: 20

Average market cap rate 6%

The apartments appraised at $1,050,00 using an income approach. 

At purchase:

Average rent per unit $625

Gross rent $125,000

Expenses 50%

NOI $62,500

Post renovation:

Average rent per unit $800

Gross rent $192,000

Expenses 50%

NOI $96,000

Model 1:

Income increase per door $175.

$175/month x 20/units = $3500 x 12 months = $42,000 annual. 

$42,000 (annual income increase) / 6% (average cap rate) = $700,000 value added.

Model 2:

Income increase per door $175.

NOI at purchase $62,500

NOI after renovation $96,000

$96,000 - $62,500 = $33,500

$33,500 (annual income increase) / 6% (average cap rate) = $558,333 value added.

Purchase price $1,000,000.

Downpayment $548,000.00

At the refinance do I walk away the value add amount? 

Or is the loan restructured based on the new value. 

Ex: Model 1. 

New value $1,700,000 x downpayment 30% = $510,00 Net to me based on my downpayment $38,000.

Are these calculations correct? 

Are they in the ball park of what can be expected after refinancing? 

What formula is best for trying to gauge your ROI of the amount you invest to improve a property.

We are spending an average $4000 per unit, they are all 1 bedroom apartments and this includes labor and materials. We have remodeled 35% of the units and have 2 more underway now. We also painted the exterior and redid the landscaping. 

Thanks in advance.