All Forum Posts by: Ryan D.

Thanks Thomas! I don't have a particular property in mind yet - at this point I'm trying to understand how commercial valuations work before I really go searching.

I think I need to be more specific here, so I'll use an example. Say there is a building that I purchase for $1M, with NOI of $70k, for a cap rate of 7%. I then spend some effort and raise the NOI to $95k (through increasing rents) and I want to refinance the property - how will the bank value it? Will they say:

• "you bought at a cap rate of 7%, so its now worth $1.35M ($95k/.07)", or
• "The average cap rate for this area is (say) 8%, therefore your building is now worth $1.18M ($95k/.08)", or
• "We here are the Bank of XYZ always use a cap rate of (say) 6% when valuing commercial-multifamily buildings, therefore your building is now worth $1.58M ($95k/.06)", or 
• something completely different???

I thought sales comps were only used for residential property, and commercial properties were valued by their NOI & cap rate?

I own several residential properties and have used the BRRR strategy successfully there, and am now doing my research to make the move into commercial-multifamily (small-medium apartment complex). I am very familiar with the residential loan process, but have no experience in commercial financing (beyond what I have read) and am uncertain about how a bank will value such a property. Specifically, how do I know what cap rate (or GRM?) a bank will use in valuing a property when I go looking for a loan?

I'm interested in the Portland/Seattle metro areas - is the market relevant to what cap rate a bank will use for valuation?

Thanks in advance!

-Ryan