NOI First, Price Second

Want a cleaner way to price your offers and plan your exit without getting lost in broker fluff? We break down three real multifamily deals and show how net operating income lets us back into the right purchase price, size the debt, and forecast cash-on-cash before we even see a T12 we can trust. The theme is simple: value lives in NOI, and leverage only works when the cap rate beats your cost of debt.

We start with a 20‑unit in Georgia marketed at a 5.25% cap. On paper it throws off roughly $145K in NOI, but at 85% occupancy and thin expenses, the cash flow after debt shrinks to about $11K on a $750K down payment. By normalizing expenses and pushing the cap to a 6% target, we reprice the deal near $2.4M, reduce debt service, and lift annual cash flow toward $35K—with a clear upside path as occupancy improves. Next, we pressure-test a 16‑unit Florida property pitched at a 7.3% cap with expenses around 25%. We reset to a 40% expense load, model 95% occupancy, and show how a $100 rent increase across 16 units adds roughly $19K to NOI and about $270K to value at the same market cap, creating real refinance or sale options.

The final deal comes with spotty data, so we build it from first principles: realistic rent, 40% expenses, and a 7% unlevered target to set price near $1.786M. With 25% down and 6.5% debt, levered returns land above 8%—and we outline how minor rent alignment can compound results. Along the way, we share key rules of thumb: if the cap rate is lower than your all-in debt cost, your cash-on-cash will suffer; if cap beats debt, leverage can amplify returns safely. NOI divided by target cap sets the offer. Purchase price times cap yields NOI. Those two loops keep your underwriting honest, your offers disciplined, and your exits realistic.

If you’re ready to underwrite smarter and buy with confidence, hit play. Then send us a deal on Instagram at Dale Kearns Jr so we can review it together. If this helped sharpen your process, follow, share with a friend who’s hunting apartments, and leave a quick review to support the show.

Chapters

• 0:08 Framing The NOI Mindset
• 1:10 Deal 1: Georgia 20-Unit Snapshot
• 4:30 Testing Assumptions: Occupancy And Expenses
• 8:20 Repricing With NOI To Hit Returns
• 18:36 Deal 2: Florida 16-Unit Reality Check
• 23:30 Stress Testing Expenses And Cash On Cash
• 31:36 Creating Value: Rent Bumps To Exit Or Refi
• 36:50 Deal 3: Building Price From NOI
• 45:20 Rules Of Thumb: Cap Rate vs Debt Cost
• 47:53 Closing CTA: Send Us Your Deals

Transcript

SPEAKER_00: 0:08

Hey, what's up, everybody? We're back this week. We're going to be analyzing some more deals. And this week I'm going to focus in on the NOI, which is the net operating income of each of these deals, why it's important, how it can help you analyze the deal, find out what you can pay for the deal, and how much money you're going to make on the deal. And then also what that looks like for the exit of the deal, and how the NOI basically creates what price you're going to pay and what price you can sell for, um determining how the NOI gets you there and why it's important. So let's jump in and let's start analyzing some deals. I got one that uh this is a deal in Georgia. And let's see what information we have on this deal. Okay, so this is uh twenty units. So twenty units, and they are asking two seven five two point seven five oh what is that? Two uh like one thirty five a unit or something, two seven five oh divided by twenty, one thirty-seven fifty per unit, one thirty seven five hundred per unit. All right. This says it's a class B now cap rate. They're saying the cap rate is five point two five percent. Five point two five percent cap rate. Okay, and in the prior video I went over cap rate. The cap rate is whatever your asking price is times the cap rate. This is actually going to give us our NOI. So this is gonna give us what our operating income would be if we paid cash for that deal. So, and the NOI is the net operating income. Okay, so basically, whatever your income is from rents, um fees, pet fees, and any of that kind of stuff, whatever your income is minus your expenses, that is what your um so the NOI equals income minus expenses. Okay, and this is important because this is how much money you're gonna make in an apartment complex in uh a one-unit deal, a 300-unit deal, any business runs off of net operating income. Um, it's income minus your expenses, that's your NOI. So we can get this NOI, this property, by taking the 5.25% divided into or multiplied into 275 times 0.0525 is 144. So they're saying the NOI is let's say 145,000. Okay, so their income minus their expenses is gonna be 145,000. So we can do this and see if this deal even works based on this number. So now we can take our purchase price, and let's say 25% down. That leaves us with 2,062, divided by 0.065, and I say 0.065, that's a rough principal and interest number, and that's 134. So our NOI is 144, and our debt is going to be 134. So on this deal, you're gonna make eleven thousand dollars a year, okay? Now that's just rough numbers based off the little pieces of information that they gave us. So let's go in and see how close we are on this one based on the information that they give us. So it should be close to this. So on this deal, we're gonna have to put down roughly let's say seven hundred and fifty thousand. Okay, so we take our eleven thousand divided by seven hundred fifty. That's one point four six percent. That is very low. We need this number to be higher, which means we're gonna have to pay a lower percentage. Okay. So let's see what they say. So they're actually saying, so they're saying this one forty-four three oh two, so one hundred forty-five at a five percent cap rate, solid occupancy, it says eighty-five percent least. So let's see if that number yeah, they're saying current occupancy is eighty-five percent. So that NOI is at eighty-five percent. Okay, so seventeen units are not occupied. So let's say um point nine five. Nineteen. So let's say we can get to nineteen. Let's see how much that changes this. So they're saying the gross potential rent is nineteen eight twenty-five. I'm gonna say that's assuming they're a hundred percent occupied, so about nine ninety a unit, nine ninety times nineteen is eighteen times twelve, two twenty-five times. All right, so they're saying the total rent potential is nineteen eight twenty-five times twelve is two thirty-seven. So they're saying their income potential is two hundred and thirty-seven thousand. Okay. They're saying their operating expenses um is one hundred forty-four. No, seventy-nine thousand. Okay, that's let's say two thirty-seven thirty-nine one fifty-eight. Okay. Their numbers are actually a little different. Two twenty-three income. They're saying it's actually two twenty-three. Okay, but you can add sixteen thousand eight hundred and forty if you get to a hundred percent occupancy. Two twenty-three plus let's say seventeen, two forty. So about that number. The problem with this number is the expenses is that number's too low. That's thirty percent. This is probably gonna be closer to forty. Okay, so let's say 237 times 0.6 142 NOI. So that's still pretty close. 237 times 0.494. The problem with this number is they don't have in there the management, which is gonna be about 20% of this number. So, really, this should be plus 20,000. This should probably be 100,000. If you're gonna be, if you're gonna be accurate. And I like to always do the numbers a bunch of different ways to see worst case scenario. So let's say this is a hundred thousand, and now this is one, let's say 38 NOI, but your debt doesn't change. So this is actually worse. This would be five thousand. That's too small of a deal. Okay, now let's say with this NOI, what can we pay?

SPEAKER_02: 12:02

Okay.

SPEAKER_00: 12:08

So we have the NOI. This is what they're saying. Give or take five thousand dollars, it's pretty close. Okay, so at five percent, one forty-five divided by point zero five two five gets you to this number. Okay, but that's not gonna work for us. Okay. So let's say we wanna based on this NOI, we want to make let's say eight percent divided by point oh eight. That's one point eight. Let's say six percent. Okay, two point four. So if we wanted to make six percent instead of five twenty-five, one hundred forty-five divided by six percent is two point four times point seven five. Now let's back into our debt times point oh six five. This makes it a hundred and seventeen thousand. Okay, so what's that? About thirty-five thousand. Okay, that makes it a little bit better of a deal. Now our down payment is only about six hundred thousand. Let's say two point four times point two five, six hundred thousand. Okay, thirty-five thousand divided by six hundred thousand. This goes to five point eight. So what we did there was we took our NOI. Once you know this, you can you can do whatever you want. Okay, now we took this number, we did our debt based on their numbers, but it's one and a half percent deal. You're making eleven thousand dollars if that information is accurate, which it looks like that would be best case scenario based on their numbers. Okay, so we did this at six percent. Now it increased our NL, our NOI stays the same, but it decreased our debt by a lower purchase price. Now we're making 35,000. This would be 2.4, reduced our down payment, reduced our debt, increased our profit, increased the percentage of how much we're making just by taking the NOI and adjusting it. Okay, so now they're saying we can add sixteen thousand dollars a year, which would be one forty-five plus let's say sixteen thousand. Now that's an NOI of one hundred sixty-one. Okay, minus our one eighteen, now that's forty-three thousand divided by our six hundred thousand, seven point one six. So if we got to a hundred percent occupancy, which would be great, but even if we added two units, give or take, it's gonna increase our NOI to one six. That's one sixty-one minus our debt one seventeen, forty-three thousand seven point six percent, one six percent. That's at a purchase price of two four. So we use our NOI to figure out that the 2.75 doesn't work at this percentage. Use the NOI to find out what we could pay for a reasonable amount of money and percentage, and then if we increased our NOI, the difference is gonna make. We're gonna make$8,000 more dollars a year, about one and a half percent more by getting it to 19 to 20, 95 to 100 percent occupancy. So this deal at 24, which would be six percent, with six hundred thousand down, and a debt of let's say one hundred eighteen. This is how this deal would work based on the NOI of one hundred forty-five. So, not too bad of a deal. Looks like it's recently renovated as well. So, what you would do here is you call the agent and pitch him on 2.4. See what they say, maybe make that deal work. Okay, let's look at another one. So today we're talking about NOI, why it's important, what it does. And why how I can figure out what you can pay. So this is saying they got two different cap rates on this, but they're saying this is sixteen units. And they are asking, um two point eight five oh. Two million eight five oh okay. What is that per unit? Two eight five oh. Whoops. Divided by sixteen. Hundred and seventy-eight thousand a unit. Okay, so a little bit more expensive. Uh, this one's down in Florida, so not super surprised. So they're saying this is a seven point three percent cap rate. All right, so let's see. Expenses. And cash on cash. So the NOI. NOI. We're gonna take our purchase price minus the seven point three percent cap rate times point zero seven three, two oh eight, oh fifty. Okay. So they're saying that's what our NOI is. So that's our income minus our expenses. And we are getting 208.050. Okay. So let's do the let's do the math on this. 2850. Let's say we put down 25%. Okay, that's going to leave us 2137. So this is going to be about 750 down. Okay, times 0.065. So our debt is going to be 139. So without even knowing the income and expenses, we can figure out the debt and the cash on cash. So 2080 minus 139 69,000. That's going to be about eight or nine percent divided by 750. 9.2% with debt. So the reason this is higher or this is lower than this is because we have debt on this. So we're using the debt to bring down to increase our cash on cash, which is why the percentage is higher than the cap rate. This is if you paid cash for it. Since we're not paying cash and we're leveraging debt, it can give you a higher return. So this isn't bad.$69,000 a year,$750. This is what I bought it for, not the$2.8.$750,000 in it.$69,000. So it would take you 11 years, you got all your money back. That's without any rent increases. So this number isn't too bad. So let's see what the income and debt is. Assuming their numbers are accurate. And they are saying they're 100% occupied, which I normally don't figure 100%, do it at 95%. Okay, so they're saying the T12, so 2024 rents was 20,970. Times 12 is 251. I can tell you already, if this is 251 and this is 208, the expenses are aren't aren't matching up. I always do it by 40 percent. Unless you can see how they're getting that less, but deal 16, 30 units, eight units, they're gonna be higher to manage or uh from an expenses standpoint. So 208,050 times 0.4 is 83,000. Okay, so they were saying their expenses were somewhere around 40,000. Which 20,000, if you if you get a manager, let's say 10 percent, that's 20,000 right, or I'm sorry, 25,000 right off the top. So that's over 50 percent just in that plus repairs and vacancy, and so already it doesn't sound like their operating expenses they're saying is sixty-six thousand. So they're getting two fifty-one plus seventy five hundred, so about two sixty, sixty-six thousand in expenses. So in twenty twenty four, their NOI they're saying was actually one hundred ninety-two, and in twenty twenty-five is when they got the the two oh eight. So let's do this at two fifty-one, six forty minus eighty-three, two twenty. That's one sixty-eight. Okay. Minus the debt, one hundred thirty-nine. Now it's thirty thousand and about half of that divided by seven fifteen. Yeah, four percent. So this this is the expenses at forty percent of the income. Okay. Now you're at a much lower cash on cash, your cap rate. So then we can do the same thing on this. So let's take this NOI, one sixty-eight four twenty, divided by their cap rate. That's two point three. So one twelve. So one sixty-eight four twenty minus one twelve is fifty-six thousand divided by let's say six hundred nine point four. So it's similar to another deal. Based on their numbers, which their expenses on that property, they're saying the expenses are sixty-six thousand divided by they actually say the income is two fifty-nine. They're saying their income or their expenses on this are 25%. Now they don't have any management. They do have management. Uh, actually, it's$17,000. It's a pretty good deal. Repairs and maintenance, insurance, property tax, lawn and pest control. A thousand dollars. Doesn't seem like a lot. 25%, though. I would never do it at 25%. For expenses, I'm always at 30 to 40 percent. So I think the NOI based on 40% expenses would be this number. Here's their income. What I think the expenses would be, or what I would do it on, and then the debt, and then the cash on cash, was which is going to be around 30,000. Now you take this NOI at their cap rate, which would be a 2.3 per million purchase price. So then you you go to the seller and and you do the exact same thing, either they'll take it or counter or not. But you don't want to go by their numbers, you gotta make the deal work for you based on what you're underwriting on, because a lot of times these T12s and T3s and what they have in there, you can look at it three different places, and it's always three different numbers. So you gotta you gotta do the numbers yourself and and get to it yourself. But again, net operating income. This is what they said, this is how we're doing our math, and we use this number to get the debt and the cash on cash without even knowing the income and expenses. So let's say you increase the rent a hundred dollars. Okay, we're gonna do this. Is the exit strategy. So let's assume this is our NOI at the current income. Okay, so let's say we and a 7.3% cap rate. So uh let's say we increase the rents a hundred dollars times sixteen units times twelve is nineteen thousand plus, so this is gonna add nineteen thousand to this number. Okay, one eighty seven twenty thousand. Yeah. That's right. Um divided by point zero seven three. Okay. So if we if we got a hundred dollar rent increase on sixteen units, that would increase our NOI one eight seven six twenty. Divide that by that same cap rate, now you're at two five two five seven oh. So you just increased the property value by two hundred and seventy thousand dollars by getting your rent increase. Okay, so if you sold that property, your your debt is one point eight seven hundred and seventy thousand. So that means you can get a hundred dollar increase, increase your NOI, the same exact cap rate, you can sell that property and make back your down payment with the hundred dollar increase. Okay, so by increasing the NOI, you also increase the value of the property, and that's how you make your money. You've re you could refinance that, you could so let's say if we refinanced it times 0.75 minus 180, 130,000. So if you went in there and increased the rents, 100 refinanced it, you could walk away with$130,000 by at this new price. Let's say you had to put another 25% down to increase it, but we only owe 1.7, 1.8. So this would be 1.9, 25%. So that we could walk away from the bank 130, 150, a couple hundred thousand dollars, depending on what this number exactly is, just by increasing the rents and doing nothing else. So now we could do that, have cash in hand, go buy another deal, put it back into the into the property, get another increase. Your cash on cash would would be lower because your debt's gonna be a little bit higher, but that's how you can use the noi to get the exit, whether you're gonna refinance or sell. Okay. It says it's ninety-four percent occupied. There's no cap rate. But let's see. Um, I got a lot of information about other properties. Okay. So they don't have any information on this. I'm not even sure it's really occupied. They just have a lot of pro forma data. So let's say they're saying market rents are nine sixty-five times, well, they're not a hundred percent, so nineteen times point nine five, so eighteen. So nine sixty-five times eighteen. So let's say their income is okay. The income. So we're gonna figure out the NOI and then we're gonna figure out what purchase price we would like to have on this. So their income, they're saying, is two hundred eight four forty. Okay, nineteen units. I'm gonna use my forty percent times point four. So the expenses are gonna be eighty-three. Okay. So that means our NOI is gonna be two oh eight, four forty minus three, three, seven, six, one twenty-five, oh sixty four. Okay. So let's say I want to make seven percent on this, similar to our last NOI, divided by point oh seven. That's a purchase price of one seven eight six. This is at a seven percent cap rate. So let's see how this works. Times point two five. That's let's say four fifty down. Okay, so four fifty down, that leaves us with let's say thirteen fifty. All these I'm just running through this, they're not exact, so don't hold me to it. Times point oh six five. So our debt is gonna be eighty-seven seven fifty, and then our cash on cash one twenty-five four, thirty-seven thousand dollars divided by our four fifty down eight point two nine percent. Income two oh eight, based on the nineteen units at nine sixty five per month. Expenses at forty percent. Here's our NOI, here's our debt at this purchase price. Cash on cash thirty-seven thousand eight point two nine percent. Okay, so we did this at a seven percent cap rate. So we want to make seven percent on our money if we bought it cash. If we're utilizing debt, obviously it's a little bit higher. My guess would be they're asking more than this and not giving a lot of information. Um, so you'd probably have to call the broker and get some more information. But at this purchase price and that cap rate, not a bad deal. We just got to see if if it's something they would do. So, what we did was we got our NOI, which is the net operating income, okay, and we can do we want five percent, six percent, seven percent, eight percent. So, to get the purchase price, you would take your NOI divide by your cap rate. And if you wanted to get the NOI, you take your purchase price times the cap rate. Okay. If you want to get NOI, you would do the purchase price times your cap rate. Okay. So we would do one point one point eight million times seven percent would give us our NOI. Okay. If they're not giving the NOI and they give the purchase price and they give the cap rate, that's how we can get it. If we don't have a purchase price, like we did in this case, we can we can figure out the NOI divided by a return 7%. And you would get your purchase price. Okay. In this case, um if your principal and interest percentage, if you go to the bank and they're gonna tell you we're gonna loan you this money at this percentage, I use it, I use it at 6.5 percent for today's rates, then I would I would want to get a return of at least that amount. Six and a half or higher. So you go six and a half or you go seven, you can come up with your purchase price. If your cap rate is less than your debt, it's gonna give you a less cash on cash and a less return here, or make the deal not even work. If you're if you're higher than that, if your cap rate is higher than what your debt percentage is, principal and interest, then you're gonna have better numbers here, and you can make more money. So that's how I'm calculating that at seven percent. But that's why the NOI is so important. If you increase this, keep your debt the same, your cash on cash is gonna be higher, your percentage here is gonna be higher. But you can use this number to figure the purchase price, how much you're gonna make on the deal, and then if you increase this, you can increase the value of the property to either refinance or sell whatever your exit's gonna be. So this number right here is so important. If you can get that information, then you can find out everything else from there. So all these deals we looked at today, they're giving us information, not necessarily saying it's accurate or not accurate, they're asking a purchase price, but then we can back into the numbers and get our own purchase price. Here's what we would want to pay for based on the return that we want to see. The return that we want, what our investors want to make everything work for us. May not work for them, but we're not gonna force something to work if the numbers don't add up. If you want to look at more deals, if you have a deal you want to look at, send me a message on Instagram at Dale Kearns Jr. Let's look at deals together. We're gonna be doing, I look at deals every day, reviewing deals weekly, figuring out how to get the numbers to work. If you're interested in this and you want to do deals, you want to look at deals, you have deals you want to review, then hit me up, send me a message, let's talk. I'm buying a deal. I'm buying deals, and we're putting things together for our investors to make it worth it for them to go in with us so we can scale faster and increase our portfolio of apartment complexes. So if you like looking at deals, you like doing deals, you want to do deals, reach out, let's talk, let's go through deals, let's do some numbers, and let's scale it together. Thanks for tuning in. We'll see you next time.