CASE STUDY #3 How to Estimate the value of Multi-family (Apartments) Property Income Capitalization Approach INCOME: All revenue generated from the property > EXPENSES: All expenses other than debt service & capital expenditures NOI: Net Operating Income (Income minus expenses) FORMULA: CAP Rate = For example, if the NOI = $80,000 and the price - $800,000, the CAP rate would be ($_ 15 What is the CAP Rate? Following is the equation used to arrive at a price or value: If your client wants to purchase the revenue stream of $80,000 in this apartment building, the cost of acquisition would be as follows: FORMULA: Price If the CAP rate is 8%, then Price = $_ What is the Price? $ The following equation shows that your client would have to pay significantly more to acquire the same revenue stream. The lower the CAP rate, the higher the price as shown below: FORMULA: Price = If the CAP rate is 5%, 1 = $ then $ What is the Price? $ COPYRIGHTO 2013. ALL RIGHTS RESERVED. COMMERCIAL REAL ESTATE ADVISORS, LLC