Rent Increase to Value Increase

[Matthew Wright]

I understand increasing income and lowering expenses makes an apartment building worth more, but what is the exact metric for value to rent increase. 

For example I've heard in the past, some people say "$50 rent increases per unit per month, on 8 units increases the property value by X amount, just simply by rent increase" (cant remember formula). 

I've got a property UC that is significantly below market rents, by around $200 per unit, so I'm really curious what kind of value add scenario I'm looking at.

[Charles Carillo]

Hi Matthew,

It depends on the cap rate. For example, a $200 rent increase on a 8 unit property with a 7 cap would increase the value by $274k. Now this is a rough estimate; assuming expenses stay the same and you have 100% occupancy. 

Here is the formula: Increase In NOI (200 per unit increase x 8 units x 12 months) / .07 (7% Cap. Rate) = $274k

Also this might help: Cap Rate = Net Operating Income / Current Property Value