All Forum Posts by: Michael Cole

@Yazan Ayyash I do understand what you are saying but the value of a building is not in NOI alone....it's also in the condition of the building. I'll be chatting with the appraiser about this soon enough and should have some updates on this.

Thanks for further info....an appraiser could prob give the best insights to this but i think the take home message is commercial real estate value is primarily based off of cash flow (NOI) but there is also value added in general renos that do not increase NOI

Thanks

Mike

I like your answer!! This in a nutshell is exactly what I’ve been trying to say all along lol

I understand what you are both saying about NOI being the most important. But if you buy a place and put in a new roof $50k roof, 2 new retaining walls$25k , and replace all the furnaces and AC $75......These big capex items won't increase NOI but I can guarantee this will increase the value of the property (i.e. a buildings cap rate can change) This cap rate will still be heavily dependent on local markets so it won't change much.

thanks for the responses

As a follow on to my last post. Lets say NOI is $100k and the cap rate is 10%. This building is worth $1M

Now lets say i do the improvements stated above and the NOI is still $100k....do the improvements lower the cap rate for this individual building to 9% and make it worth $1,111,111?

@Clark Kirkpatrick I know that increasing rents will increase value of the building. I’m talking about independent of rents. Let’s say rents stay the same but I put $50k into the buildings amemities and common areas. The question is would this lower the cap rate for the building? i.e. taking a cap rate from 10 to 8 makes the building worth more

 I figure an improved building independent of rents would lower the cap rate for that individual building

I’ve been renovating a 16 unit apartment in Pittsburgh for the past 6 months and things are going well. I’m renovating individual units (kitchen/bath/flooring/some painting) and I’m able to increase rents $150-$300 per unit. Additionally I put in 2 new retaining walls, painted the entire inside common area, new carpets, added a small gym, and put up nice artwork (essentially it looks like a brand new building)

My question is about cap rates......I know cap rates are based on the area and general economic conditions. The cap rate of my place is roughly 9-10% based on initial NOI and appraisal. Would these general renos further reduce the cap rate of this building independent of macro economic conditions and the local area?

Yes this is def something that crossed my mind. This would require that I add a bathroom and do a build out and add windows.

I still think hydroponics or storage is my best option.......good thing is I don’t need to make a decision now I’ll be doing more research over the next few months

@Yonah Weiss thanks for the tips!! Good thing there is already washing machines and I’m in the process of adding a gym to a separate room. Storage may be an option but with only 16 units I may add storage separately.

Its 1500 sq ft so thats why im thinking storage to the outside community (but there are a lot of steps for access) or hydroponics biz.

I def agree I want it to drive revenues because it will probably cost $40-50k alone to fill in the pool. I need something that will drive revenues to make up for these costs.

Typically I would agree but a buildout for more residential units doesn’t work logistically for this space. So I need to come up with other money making solutions.