Real Estate & REITs
Walk me through the math of a value-add deal: buy at $80M on $5.0M of NOI, spend $10M on renovation, grow NOI to $6.3M, and exit at a 6.0% cap.
Model answer
Going-in cap = $5.0M / $80M = 6.25%. Total basis = $80M purchase + $10M capex = $90M, and stabilized yield on cost = $6.3M / $90M = 7.0%. Exit value = $6.3M / 0.06 = $105M, so unlevered profit on the…
The full, human-reviewed answer is in the bank.
Sign up free and Daily 10 serves you 10 questions a day from all 1,500+ — or go Pro for unlimited reps.
More from Real Estate & REITs
- What is net operating income (NOI), and what does it exclude?
- What is a cap rate, and how do you use it to value a property?
- Why does a LOWER cap rate mean a HIGHER property value?
- What drives cap rates up or down?
- How should you think about the spread between cap rates and interest rates?
- What is the difference between a going-in cap rate and an exit cap rate, and why do underwriters usually assume the exit cap is higher?