Key Considerations and Terms
This calculator is to help investors quickly see the value they are adding to their properties by increasing their rental income. This calculator does not predict an actual sale price. In order to determine fair market value for your property you can request a broker opinion of value (BOV) and this will take into consideration several other factors including your NOI, sales comps, condition, capital expenditures, purchase price etc.
In many cases, but not all, capital expenditures are required if you want to raise rents. Spending your money in the right areas will maximize your ROI. For starters, paint, floor coverings and countertops go a long way to making a unit feel modern, clean and updated. Although these expenses do produce a good return on your investment, it is always essential to make sure the property is structurally sound first. Mold and radon remediation are issues that cost money, but should never be overlooked in order to save money. To get an accurate estimate of added value your capital expenditures should be subtracted from the total value.
Net Operating Income
Net Operating Income or NOI is calculated by subtracting all of your fixed and variable expenses from the income generated by your rental property. Your income sources include rents but also any money that comes in from a laundry facility or other amenities your property offers. Your NOI can be influenced by changes to the income or the expense side. Raising rents will typically have a positive affect on your NOI unless it causes a sudden increase in vacancies.
The capitalization rate, often referred to as the “cap rate,” is a key financial metric used in real estate, including multifamily real estate. It is a percentage that expresses the relationship between a property’s net operating income (NOI) and its current market value or acquisition cost. Our calculator assumes you bought and plan to sell at the same cap rate and doesn’t take cap-ex into account.