Evaluate this deal. Brrrr

[Carree Todd]

Hi BP,

I have an opportunity to purchase a 16 unit building. Only 2 units are currently rented ($450/month). There is an absentee owner whom inherited the property and has let it fall into disrepair.

I am looking to brrrr this property, but this will be my 1st large multifamily (over 4+ unit). I'm trying to calculate the AVR/Cap Rate. The purchase price is $90k, with an estimated $60k in repairs. The market rents in the area are $500 - $600. If I purchase this property and complete repairs, have it fully rented how do I estimate what my refinance value is? Thanks in advance!

[Jon Ostojic]

A lot of information is missing. You need to know your projected operating expenses and calculate your NOI. The value is the NOI (normal operating income) divided by the going CAP rate in the area (ask another investor or broker to find it). To calculate/estimate the NOI you'll need to know or have good estimates on the financials. You'll need to calculate all of your current/projected income and then subtract your current/projected operating expenses (not including debt service). The result is your Normal Operating Income, NOI.

So for easy numbers, a property bringing $10k per year NOI in a 10 CAP area is worth $10k/0.1 = $100k valuation.

So a property bringing in $20k per year NOI in a 5 CAP area is worth $10k/0.05 = $200k valuation.