Valuation Calculations - Need the expert's opinions!!

[Steven Barr]

I am trying to get my hands around how to value a rental property based on all the metrics (NOI, cap rate, expenses, etc..)

Ex: A 4-plex listed for $700,000. Gross income is $65,000 so roughly $1350 per unit average rent. Expenses are calculated roughly $26,000 (40%). This brings NOI to $39,000. Debt service is calculated to roughly $30,000 per year with 20% down, so cash flow is $9,000 per year.

Cap rate in this example would be $39,000/$700,000 = 5.57% 

Question #1: How would I accurately value this property if I were purchasing? Does every AREA have its own cap rate, or is it by individual building? If by area, how would you find that area's cap rate? Because if it is a 7% cap area, then the value of this property would be $39,000/.07 = $557,000. 

Question #2: Say I buy the property for the current asking price of $700,000. I then increase the rents to $1600 per unit which increases NOI to $51,000. With everything else remaining the same, what would be the new value of the property?

If the cap rate was 5.57%, I just increased the property's value to roughly $915,000 ($51,000/5.57%). However, if it was a 7% cap area, then I just increased the property's value to roughly $730,000 ($51,000/7%). 

Thanks guys!!