Comps
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[{"id": "fydhnlb", "text": "It\u2019s not about comps, it\u2019s about cap rate. Talk with local commercial brokers and commercial loan officers to see what the cap rate is on similar properties in your area.", "replies": [{"id": "fydlsus", "text": "Thank you. Just so I am clear, cap rate is the NOI divided by the purchase price.", "replies": [{"id": "fyds8cp", "text": "Value = noi/cap\n\nNOI = value * cap\n\nCap = noi/value\n\nNormally I'd only use the NOI formula to try to gauge a minimum needed for a loan payment at a certain price. I'd rather try to get to an NOI by using comps to get an accurate rent and expenses and then ask a few banks for loan terms.\n\nAll that said, you want to ask brokers for cap rates. You may calculate something but local cap rates turn out to be different. Cap rates are a reflection of investors tolerance towards the risk potential of a certain market.  Thus, the best way to come by them is to ask brokers. They will be speaking with both buyers and sellers who will be negotiating towards a certain cap rate that appeases both of their risk appetites.", "replies": [], "depth": 3}], "depth": 2}, {"id": "fyfp5bq", "text": "&gt;It\u2019s not about comps, it\u2019s about cap rate.\n\nWhere do you think cap rates come from.  They come from analyzed sales of similar properties.  Just like using sales comparison you should have at least 3 cap rate comps.", "replies": [{"id": "fygv0uq", "text": "Yes, I know where cap rates come from. The danger is that newer folks think they can analyze a 10-unit apartment building the same way they do a SFR. If they don't understand how those valuations are actually made, it can get someone less experienced in big trouble.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fydknvk", "text": "Sale method-$/sf, Income approach.", "replies": [{"id": "fydm0je", "text": "Thank you.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fyemzme", "text": "Call an appraiser", "replies": [], "depth": 1}]