Updated about 2 years ago on . Most recent reply
π NOI / Cap Rate is Pointless
β Stop dividing the NOI by a cap rate to find the value of a deal.
When I come across a potential deal, that's the last thing I do.
It's pointless
β I want to evaluate how the property is performing NOW
β Where it COULD BE performing
β And WHAT it will take to get there.
This involves (at a minimum) checking comps, creating a 5 year proforma, verifying taxes & insurance, and making assumptions about the business plan.
You can't determine if a deal is a pass/go simply from NOI / Cap Rate.
The art of underwriting involves finding value where others miss.
If you're passing on deals just from dividing the in-place NOI by a cap rate, send those over here! π