Include Management Fee in CAP rate?

[Scott Nelson]

I am looking at a 10-unit building in a less than ideal neighborhood. The actual expenses do not include a property management fee. Should I adjust the CAP to reflect that In my due dIlIgence or is it normal for these smaller buildings (whIch I assume is self-managed) to not include a management fee in the CAP rate? Thanks

[Brian Adams]

@Scott Nelson let's make sure we are on the same page.

You don't control the Cap rate as the cap rate is determined by the market.

What you do however control are your expenses. 

YES - on including the management fee in your underwriting (financial analysis) and this expense will reduce your NOI (net operating income) which will lower your purchase price.

In computing value for multi's, Value is determined by dividing your NOI by Cap Rate.

Make sense??

Good luck!!