Adjusting NOI on multi family (apartments)

[Jonathan Aymin]

Hi BP nation!

I was listening to a recent BP podcast And heard Michael Becker say something about adjusting NOI in this market with a little bit more compressed cap rates. He said "every dollar I drive to NOI is 20 to value"....and was saying it in relation to increasing NOI on multi family vs single family.

Anyone able to break this down a bit more for me? Thanks in advance!

[Greg Scully]

@Jonathan Aymin - Since the value of a commercial property is derived from the NOI/CAP rate, an increase in the NOI (either by income growth or expense reduction) will have an affect on the value.

If you purchased a property with a NOI of 100k at a 6% CAP rate, the value is 1.66M. Increase the NOI to 120K and the value jumps to 2M.

Single family values are determined by comparable sales.  You're property is largely determined by the market - of which you have no control over - and therefore increasing the value is less of a business plan and more of a market play.