Multifamily Value Calculator
Value a multifamily asset from its income, test what a cap rate shift does to it, and price the forced appreciation a rent rise or an expense cut actually creates.
Multifamily Value Calculator
Results recalculate instantly on every keystroke. Nothing you type is transmitted.
What this result does not account for
- Assumes a stabilised NOI — lease-up and value-add periods need a cash flow model.
- Cap rates are market observations, not calculations.
- Applies to five-plus unit properties; smaller buildings are valued on comparables.
In short: Value follows NOI, not comparables. At an 8% cap, 84,240 of NOI is worth 1,053,000 — and a 50 per unit rent rise across 10 units creates 45,000 of value from 6,000 a year of extra rent.
Formula
value = NOI ÷ cap rate
forced appreciation = ΔNOI ÷ cap rate
[('income approach', 'value follows NOI, not comparables'), ('forced appreciation', 'value manufactured by raising NOI'), ('DSCR test', 'NOI ÷ debt service'), ('debt yield', 'NOI ÷ loan, immune to term and rate')]
Worked Example
- Capitalise net operating income at the market cap rate.
- Test what a 100 basis point expansion does to it.
- Price the NOI lift from a rent rise at the same cap.
- Do the same for an expense reduction — identical effect.
- Size the loan on both DSCR and LTV; the lesser binds.
84,240 of NOI at an 8% cap is 1,053,000, or 105,300 per unit with a 7.3125 GRM. A 100 basis point expansion to 9% cuts value to 936,000 — 117,000 lost, 11.1111% of value, with no change in performance. A 50 per unit rent rise across 10 units adds 6,000 of gross rent and 3,600 of NOI at a 60% incremental margin, creating 45,000 of value: 7.50 times the annual rent increase. A 6,000 expense cut creates 75,000, treated identically. A 1.25x DSCR supports 888,511.96 but 75% LTV allows only 789,750 — LTV binds, with the crossover at a 7.1108% cap.
Strengths & Limits Of This Model
Where this engine is strong
- Prices forced appreciation from both rent and expenses
- Reports which lender test binds and the crossover cap
- Quantifies cap rate sensitivity explicitly
Where it stops
- Stabilised NOI assumed
- Cap rate is an input, not an output
Practical Use Cases
Valuing an acquisition
Capitalising NOI at the market rate.
Planning a value-add
Pricing the rent rise before executing it.
Stress-testing an exit
Seeing what cap expansion costs at sale.
Sizing debt
Finding whether DSCR or LTV binds.
Comparing metrics
Cross-checking against per-unit and GRM.
Methodology & Editorial Standards
Value is net operating income divided by the cap rate, with the 100 basis point sensitivity computed explicitly because cap movement dominates every other valuation variable. Forced appreciation applies an incremental NOI margin to the gross rent increase rather than assuming every new dollar reaches NOI, and the expense reduction is capitalised identically to demonstrate that the source of a dollar of NOI is irrelevant. Loan sizing runs both the DSCR and LTV tests and reports which binds, together with the crossover cap rate at which they swap.
Computation runs in IEEE-754 double precision at full internal precision; rounding to two decimal places occurs strictly at the display layer, so no cumulative drift enters the result. All monetary outputs use accounting presentation — grouped thousands, two decimals, negatives in parentheses — so figures can be transcribed directly into a model or working paper. Division-by-zero and out-of-domain inputs return an em-dash rather than a misleading number.
This engine was reconciled against an independent reference implementation and hand-verified for the worked example above before release. Our full five-stage review process is published on the About Us page.
Disclaimer. This calculator is provided for informational and modelling purposes only and does not constitute financial, tax, legal, medical, or engineering advice. Verify all figures with a qualified professional before acting on them.
Multifamily Value Calculator — 10 Expert FAQs
10 analyst-written answers to the questions practitioners actually ask — optimised for voice and answer-engine retrieval.
How is multifamily property valued?
On its income. Divide net operating income by the market cap rate and you have the income approach value. This differs fundamentally from houses and small multifamily of one to four units, which are appraised on comparable sales regardless of what they earn.
What is forced appreciation?
Value created by raising net operating income rather than by waiting for the market. Because value equals NOI divided by the cap rate, every dollar of additional annual NOI creates multiple dollars of value — at an eight per cent cap, twelve and a half dollars for every one.
Does cutting expenses create as much value as raising rent?
Exactly as much, dollar for dollar. Capitalisation does not care whether a dollar of NOI arrived as extra income or as a saved cost. Expense reduction is often faster to achieve because it does not have to wait for leases to renew.
How much does a cap rate change matter?
Enormously. A hundred basis point expansion cuts value by roughly eleven per cent at an eight per cent cap, with no change whatever in the property's performance. This is the dominant valuation risk in commercial real estate and it is set by capital markets rather than by the asset.
What exit cap rate should I underwrite?
No lower than your entry cap, and prudently a little higher to reflect the building being older at sale. Assuming cap compression is assuming the market will hand you a return you did not earn, and it is the most common way value-add projections are inflated.
What is debt yield?
Net operating income divided by the loan amount. Lenders look for eight to ten per cent because, unlike DSCR, it cannot be flattered by stretching the amortisation or by a temporarily low rate. It measures the lender's return if they had to take the property back.
Which caps my loan, DSCR or LTV?
Whichever permits less, and it depends on the cap rate. At low cap rates the property is expensive relative to its income so DSCR binds; at high cap rates the value is low relative to the income so LTV binds. There is a crossover cap rate where the two coincide exactly.
Is price per unit a reliable measure?
Only as a cross-check. It ignores expenses entirely, so a building with unusually high operating costs looks cheap per unit while being correctly priced on income. Use it to sanity-check the income value, never to replace it.
Why do five units change everything?
Because the five-unit threshold moves the property from residential to commercial for both appraisal and financing. Valuation switches from comparables to income, and the loan moves from residential underwriting to commercial terms with DSCR tests, shorter maturities and often recourse.
Can I create value if the market falls?
Yes, and this is the real strength of income-based valuation. Raising NOI creates value regardless of the direction of comparable sales, though cap rate expansion can offset it. A genuine value-add can hold value in a soft market where a house simply cannot.