This blog explains how to calculate multifamily property value using NOI, cap rates, and market comps, therefore helping investors make smarter offers, secure better financing, and reduce risk.
When you’re evaluating your next multifamily investment, calculating the property’s true value is essential. Get it wrong, and you risk overpaying, underperforming, or missing out on critical financing. But get it right, and you position yourself to build real wealth, one door at a time.
In this guide, we’ll break down how to calculate a multifamily property’s value so you can make smarter offers, secure better loans, and scale with confidence.
Step 1: Start with Net Operating Income (NOI)
NOI tells you how well a property performs financially. It’s the foundation of most valuation formulas and a key figure lenders use to determine loan eligibility.
NOI = Gross Operating Income – Operating Expenses
- Gross Operating Income includes rent, parking fees, laundry, storage, and tenant-paid utilities.
- Operating Expenses cover property taxes, insurance, management fees, maintenance, repairs, and any utilities you’re responsible for. Don’t forget to factor in the cost of tenant turnover.
Pro tip: Keep NOI clean: exclude mortgage payments and capital expenditures. NOI should reflect property performance, not financing structure.
Step 2: Apply the Cap Rate Formula
Once you’ve calculated NOI, use it to determine the property’s value using the Capitalization Rate (Cap Rate).
Cap Rate = NOI / Purchase Price (or Market Value)
Cap rates vary depending on location, property class, and market demand:
- Higher cap rate = higher risk, higher potential return
- Lower cap rate = lower risk, more predictable performance
Research local market cap rates to ensure your expectations align with real conditions. A 6% cap in one market could signal opportunity, while in another, it might signal risk.
Step 3: Use Valuation Methods That Match Your Strategy
There’s no one-size-fits-all when it comes to valuing multifamily properties. Use the right approach for the asset you’re targeting.
A. Income Approach (Most Common)
Best for larger multifamily deals where income is the primary driver of value.
Property Value = NOI / Cap Rate
This method ties directly to performance, making it a favorite of both lenders and investors.
B. Sales Comparison Approach
Ideal for smaller multifamily properties (2–4 units).
Compares recent sales of similar properties in the same market. Use it to gauge fair market value and negotiate purchase price.
Don’t forget: getting accurate comps is essential. Inaccurate or outdated comparisons can skew your valuation dramatically, leading to overpaying, missed financing opportunities, or incorrect projections. For a solid comparison, comps should match closely in location, condition, unit count, amenities, and rent roll. When in doubt, consult a local appraiser or real estate agent with multifamily experience.
Step 4: Evaluate Location, Demand & Rental Comps
Even the best property won’t perform well in the wrong neighborhood. Look at:
- Population growth
- Job market and local employers
- Rental comps and vacancy rates
- Planned infrastructure or developments nearby
High rental demand + limited supply = stronger cash flow and appreciation.
Step 5: Choose a Lender Who Understands Multifamily
Your financing partner can make or break your investment timeline. Dominion Financial offers multifamily bridge loans designed for speed, simplicity, and scalability:
- Close in as little as 7 days
- No appraisal required
- Finance up to 85% Loan-to-Cost (LTC)
Final Thoughts
Knowing how to calculate the value of a multifamily property gives you the confidence to act fast, negotiate better, and avoid costly surprises.
Whether you’re buying your first triplex or scaling to 50 units, accurate valuations are how smart investors protect upside and limit risk.
INVESTOR TAKEAWAYS
The most common way to calculate the value of a multifamily property is by using the income approach. This method divides the property’s Net Operating Income (NOI) by the market cap rate. The formula is: Property Value = NOI ÷ Cap Rate, making cash flow the primary driver of value.
NOI represents a property’s annual income after operating expenses but before debt service and capital expenditures. It includes rent and other income streams minus expenses like taxes, insurance, maintenance, and management. NOI is critical because lenders and investors use it to evaluate performance, loan eligibility, and overall value.
Cap rates reflect the relationship between income and price. A lower cap rate typically indicates lower perceived risk and higher property value, while a higher cap rate suggests higher risk but potentially stronger returns. Using the correct local market cap rate is essential when calculating multifamily value accurately.
The income approach is most commonly used for multifamily properties because value is driven by cash flow. For smaller properties, such as duplexes or triplexes, investors may also use the sales comparison approach, which looks at recent comparable sales in the same market to determine fair value.
Accurately calculating the value of a multifamily property helps investors avoid overpaying, improves underwriting accuracy, and increases the likelihood of securing favorable loan terms. Lenders rely heavily on NOI, cap rates, and market fundamentals when determining leverage, pricing, and approval timelines.
