Noob question- pricing an unpriced property
Hey guys so I’m very new to CRE and am learning the ropes still. I work for a development firm thats transitioning into multifamily buy &amp; hold. We are seeing a lot of deals but have no clue how to put a value on them let alone a model to show us what we need. My two questions are:

- what methods do people use to value multifamily properties 

- are there good resources of simple &amp; complex models that one can use to plug in the numbers? If so where can such a resource be found? 

Anything will help!
[{"id": "f6vjd4q", "text": "Cap on net income would be the most obvious... and universal. Are you unfamiliar or are you looking for something more complex?", "replies": [], "depth": 1}, {"id": "f6vjqf8", "text": "Both really, the listings we get normally don\u2019t give us 1 of the parts to the equation. Either the cap rate or the NOI is missing but i don\u2019t know how to calculate cap rate. And NOI you cant calculate without the rent rolls (right?) so what do you do if the seller wont provide the rolls until you put in an offer?", "replies": [{"id": "f6vknw8", "text": "You cannot calculate a cap rate.  that is done by professional third party companies such as PWC.  Multi-families are not encumbered by long term leases so just calculate NOI using market metrics.  That will show you what the building NOI can be.  The seller is selling NOI.  they should provide you with what their NOI is.  Offer based on market metrics with below the line adjustments based on the difference of how they are performing.", "replies": [{"id": "f6vrwnp", "text": "The cap rate formula is really straight forward. It is the perpetual bond formula. If you know the current rents, and you know what your operating expenses should be, then you can calculate an NOI. Brokers in the area can give you cap rates that similar projects have sold for to give you enough info to create some simple sensitivities. Y\n\nOP, are you buying to hold, or buying for value add?\n\nyou should be solving for IRR over your hold period. Cap rates are not a measure of your returns. If you are buying a value add project, you should calculate your yield on cost in today\u2019s dollars and compare to cap rates. You should be getting a healthy spread over spot caps for value add, or it would make more sense to just buy and hold for the cash flow.", "replies": [{"id": "f6wfd7z", "text": "Buying to Hold", "replies": [], "depth": 4}], "depth": 3}, {"id": "f6wjnia", "text": "This is simply not true. You need to be working your own metrics for every deal and never blindly trust the numbers given to you. You can absolutely calculate a cap rate based on past actuals or projected future.", "replies": [{"id": "f6wnphf", "text": "&gt; You can absolutely calculate a cap rate based on past actuals or projected future.\n\nCap rates come from an income approach to value called direct capitalization.  It is a valuation metric.  V=I/r  If you are r=I/V  you do not have the V or the r so as I stated you cannot make the calculation.  Why would you any way?", "replies": [{"id": "f6yl0gk", "text": "If we want to be semantic, then technically either the cap rate or the valuation is being \"estimated\" and not calculated. What you're implying just isn't true as this entire industry is built around models that project all three factors of the direct capitalization approach to value. At the end of the day, all of these valuation metrics mean nothing because the true value is the price the seller is willing to pay and the buyer is willing to accept. That's market economics 101.", "replies": [{"id": "f70iba1", "text": "The price the seller is willing to pay and the buyer is willing to accept is exactly what cap rates measure.  Geez.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6vkmok", "text": "1) Sales / Lease Comps approach \n\n2) DCF (Institutional players like this, a lot)\n\n3) Direct Cap approach\n\n4) Replacement cost approach \n\nWhen you seek out a 3rd Party appraiser they\u2019ll usually do a combined analysis of all these approaches and do a small write up about how they blend each projection into a Concluded Value. They\u2019ll adjust comps up or down based on how it literally compares to the subject and they use stuff like replacement cost to establish like a floor value. Direct Cap is popular, especially amongst brokers and the sales community. However it is NOT everything and cap rates mean nothing. Like it\u2019s so subjective. There\u2019re a great benchmark but when you go in for loan financing for example, they\u2019ll build out their own underwriting models based off their conservative cash flow projections tailored to the \u201cstory\u201d of that property (with the use of historical financials too) and they\u2019ll use typically a higher range cap for LTV calcs.\n\nEdit: Fresh PE Analyst hardo", "replies": [{"id": "f6wo8qt", "text": "&gt;Direct Cap is popular, especially amongst brokers and the sales community. However it is NOT everything and cap rates mean nothing. Like it\u2019s so subjective.\n\nThey are just comps.  That's like saying sales comparison is useless because it is also subjective and yet that is the most accurate of all valuation methods in the small residential space.  If you have good cap rate comps they are just as good.  The problem is that people want cap rates to be something they are not.  They tell you how much the market is paying per dollar of NOI.  When done consistently by a professional third party they are very valuable.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f6vlsuu", "text": "Have you considered hiring a broker to represent you?", "replies": [{"id": "f6wpy4n", "text": "What is a normal transaction fee for a broker on the buy side?", "replies": [{"id": "f6xk58a", "text": "Depends on the size of the transaction. Sometimes the listing broker offers a commission, other times the buyer agrees to pay.", "replies": [], "depth": 3}, {"id": "f6yleyq", "text": "Anywhere from 1-6% total is typical. Usually split evenly, not always though. Not a lot of brokers like to work buy-side deals, so it may be tough finding good representation. You should consider building out an acquisitions team if your company is serious about pivoting.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6vry0v", "text": "Adventures in CRE is your friend.", "replies": [], "depth": 1}, {"id": "f6vvd0u", "text": "Simple modeling:\n\nMarket rents x number of units = Gross Scheduled Income (GSI)\n\nGSI - vacancy and loss factor (typically 5% in hot markets, needs to be adjusted for your market, like 10-15%)...\n\nSo, GSI x 90% (10% vacancy/loss factor) = Gross Income\n\nGross Income x 60% (40% operating expense) = NOI\n\nNOI/Purchase Price = Cap Rate \n\nAs people have suggested, if you don\u2019t have an idea for purchase price, ask brokers so then you reverse the formula for the purchase price. BTW, I think NOI is the biggest farce for investment, you need to look at cash flow before taxes to really consider an investment. \n\nIn my models, I goal seek a target ROI to identify a price that is correlated to my operating data. ROI utilizes the cash flow before taxes so it makes a great analysis tool, but you need your estimates to be accurate.", "replies": [{"id": "f6wp63k", "text": "&gt;Gross Income x 60% (40% operating expense) = NOI  \n&gt;  \n&gt;NOI/Purchase Price = Cap Rate\n\nExpenses would never be calculated a a percent.  Why are you trying to solve for cap rate?  You are wasting time.  The next step, after you have calculated NOI correctly would be V=i/r   r would be from your cap rate comps not from dividing NOI by a asking price!", "replies": [{"id": "f6wuif4", "text": "It\u2019s called simple modeling for a reason. These are back of the napkin calculations. Industries have average operating expenses, so yes, percentages are used all the time. Do you not understand asking price cap rate versus market cap? It creates another point of analysis because cap rates are set by sellers expectations and buyer willingness, not the brokers. \n\nIn almost every case, the cap rate is the first metric investors look at. It provides market comparison and a broad unlevered rate of return.", "replies": [{"id": "f6wxsgl", "text": "Why are you trying to calculate a cap rate?  That tells you nothing.  \nThere is a NOI calculation.  Professionals use it.  Of what use is a made up NOI?  IF ALL properties have the same amount of expenses why not just use GRM's instead of some made up number?\nWhere on earth would you get an asking price cap rate comp?  There is no such thing because it would be useless.  Cap rates come from analysis by professional third party companies. If a broker cannot provide the comps he's just blowing smoke.\n\nFinally, a cap rate is not a rate of return.  It is a valuation metric.", "replies": [{"id": "f6wyr5x", "text": "You\u2019re incorrect on your assumptions and conclusions. What I\u2019ve said is not my own creation of numbers. These are market averages based on analysis of real estate sectors. NOI margins for multi family is on average 60%, for hospitality is 40%, etc. A cap rate is an unlevered rate of return based on NOI and price. It also provides market comparison between your asking cap that is too low (higher asking price) when compared to market sales. You don\u2019t need an asking price cap rate comps. I think you\u2019re fundamentally misunderstanding these metrics.", "replies": [{"id": "f6x2i8m", "text": "What I am correctly saying is if you are trying to value a building there is a correct formula to calculate NOI.  If all you are doing is taking a percentage  out of gross rents you do not have NOI.  Also since you are saying all asset types have the exact same percentage of expenses you could correctly use GRM's to value the property.\n\nYou are wasting time comparing metrics that mean nothing.  You might dazzle Grandma by saying if I use a 2 cap I'm a billionaire!  But if market cap is 12 you're only a millionaire wasting time comparing  imaginary numbers.  \n\nAgain cap rates are not an unleveraged return.  They remain the same whether the property is 100% financed or mortgage free.  You have been taught incorrect!", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6w9zgw", "text": "Check out one of Justin Kivel's udemy classes. He has one for multifamily underwriting, and I think it provides a basic model", "replies": [], "depth": 1}, {"id": "f6wfiwo", "text": "What are they transitioning \\*out\\* of where their existing modeling/valuation skills don't translate?", "replies": [{"id": "f6wjoug", "text": "Was wondering this myself...", "replies": [{"id": "f93w1t6", "text": "I'm guessing residential detached builder", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6wgw2p", "text": "Depends also on the asset class. If it is multi-family then a per unit price can also be applied, for both existing and land purchases.", "replies": [], "depth": 1}, {"id": "f6wjdv9", "text": "There are four value indicators in commercial multifamily. \n\n1) Cap Rate \n2) Gross rent multiplier \n3) Price / unit \n4) Price / SF\n\nYou shouldn\u2019t base an acquisition on any single factor, but rather a wholistic view of all four and their relationship to comparable buildings the your market. \n\nAdditionally, your firm should build or buy an excel model to evaluate every prospective purchase. There are a lot of things to consider during a purchase. For example, what is your strategy? How long will you hold? Do you have a target return to satisfy yourself or investors? What does your capital stack look like - can you afford to \u201coverpay\u201d or are you highly leveraged and sensitive to interest rates? \n\nThere are many factors that go into the decision to acquire a property for any portfolio and it\u2019s important to look at all of them separately and together.", "replies": [{"id": "f6wpyxo", "text": "&gt;There are four value indicators in commercial multifamily.\n\n1.  What about price/bed\n2. Price/bath\n3. And one that 95% of the people using direct cap forget to look at after they solve for value.  NOI/sf.  Since direct capitalization doesn't factor capex what better comparison for probable profitability than the amount of NOI coming in per sf.", "replies": [], "depth": 2}], "depth": 1}]