--- title: "How to Analyze a Multifamily Deal: NOI and Cap Rate | Addicted to ROI" description: "Value equals NOI divided by cap rate. A worked multifamily example showing current versus proforma NOI, and how that number sets your value, financing, and cash flow." lang: en json-ld: | [ { "@context": "https://schema.org", "@type": "Organization", "@id": "https://addictedtoroi.com/#organization", "name": "Addicted to ROI", "url": "https://addictedtoroi.com", "logo": { "@type": "ImageObject", "url": "https://addictedtoroi.com/images/logo.png" }, "description": "Live your best life funded by your investments. Real estate, taxes, travel, and business, by Jennifer Beadles.", "founder": { "@id": "https://addictedtoroi.com/#jennifer" }, "sameAs": [ "https://agentsinvest.com", "https://doorprofit.com", "https://repstime.com", "https://strhours.com", "https://kidspayroll.com", "https://rentstager.com" ] }, { "@context": "https://schema.org", "@type": "WebSite", "@id": "https://addictedtoroi.com/#website", "url": "https://addictedtoroi.com", "name": "Addicted to ROI", "publisher": { "@id": "https://addictedtoroi.com/#organization" }, "potentialAction": { "@type": "SearchAction", "target": { "@type": "EntryPoint", "urlTemplate": "https://addictedtoroi.com/blog/?q={search_term_string}" }, "query-input": "required name=search_term_string" } }, { "@context": "https://schema.org", "@type": "Person", "@id": "https://addictedtoroi.com/#jennifer", "name": "Jennifer Beadles", "url": "https://addictedtoroi.com/about/", "jobTitle": "Founder, Addicted to ROI", "description": "Real estate investor and founder of Addicted to ROI. Built an 8-figure rental portfolio across multiple states and teaches everyday investors how to build passive income.", "worksFor": { "@id": "https://addictedtoroi.com/#organization" }, "sameAs": [ "https://agentsinvest.com", "https://doorprofit.com", "https://repstime.com", "https://strhours.com", "https://kidspayroll.com", "https://rentstager.com" ] }, { "@context": "https://schema.org", "@type": "Article", "mainEntityOfPage": { "@type": "WebPage", "@id": "https://addictedtoroi.com/blog/analyze-multifamily-deal/" }, "headline": "How to Analyze a Multifamily Deal (the Only Formula That Matters)", "description": "Value equals NOI divided by cap rate. A worked multifamily example showing current versus proforma NOI, and how that number sets your value, financing, and cash flow.", "image": "https://images.unsplash.com/photo-1502920917128-1aa500764cbd?w=800&q=80", "datePublished": "2026-07-10", "dateModified": "2026-07-10", "author": { "@id": "https://addictedtoroi.com/#jennifer" }, "publisher": { "@id": "https://addictedtoroi.com/#organization" }, "speakable": { "@type": "SpeakableSpecification", "cssSelector": [ ".tldr-answer", "h1" ] } }, { "@context": "https://schema.org", "@type": "BreadcrumbList", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://addictedtoroi.com" }, { "@type": "ListItem", "position": 2, "name": "Blog", "item": "https://addictedtoroi.com/blog" }, { "@type": "ListItem", "position": 3, "name": "Deal Analysis", "item": "https://addictedtoroi.com/blog?category=deal-analysis" }, { "@type": "ListItem", "position": 4, "name": "How to Analyze a Multifamily Deal (the Only Formula That Matters)", "item": "https://addictedtoroi.com/blog/analyze-multifamily-deal/" } ] }, { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [ { "@type": "Question", "name": "How do you calculate the value of a multifamily property?", "acceptedAnswer": { "@type": "Answer", "text": "Divide the net operating income by the market cap rate. NOI of $98,000 at a 7 percent cap rate implies a value of about $1.4 million. Improving NOI raises the value directly, on a multiple." } }, { "@type": "Question", "name": "What is the difference between current NOI and proforma NOI?", "acceptedAnswer": { "@type": "Answer", "text": "Current NOI is what the property actually produces today, based on the trailing 12-month financials. Proforma NOI is what it will produce once you have raised income and cut expenses. The gap between the two is the value-add opportunity, and it is also what a lender will not count until you have proven it." } }, { "@type": "Question", "name": "How does NOI affect my down payment?", "acceptedAnswer": { "@type": "Answer", "text": "NOI drives your debt service coverage ratio, which is how many times the property's income covers the loan payment. Lenders typically want at least 1.2 to 1.25. The stronger your NOI relative to the loan payment, the smaller the down payment you need to hit that ratio." } } ] } ] --- [![Addicted to ROI](/images/logo.png)](/) [Travel](/pillars/travel/)[Real Estate](/pillars/real-estate/)[Tax Savings](/pillars/tax-savings/)[Business](/pillars/business/)[Paths](/paths/)[Blog](/blog/)[Tools](/tools/)[Apps](/software/)[About](/about/) [Login](https://members.addictedtoroi.com/) Subscribe [Travel](/pillars/travel/)[Real Estate](/pillars/real-estate/)[Tax Savings](/pillars/tax-savings/)[Business](/pillars/business/)[Paths](/paths/)[Blog](/blog/)[Tools](/tools/)[Apps](/software/)[About](/about/)[Login](https://members.addictedtoroi.com/) Contents 1. [01 The Formula: Value Equals NOI Divided by Cap Rate ](#the-formula-value-equals-noi-divided-by-cap-rate) 2. [02 Walk One Deal Through It: a 12-Unit Example ](#walk-one-deal-through-it-a-12-unit-example) 3. [03 Current NOI vs Proforma NOI Is the Whole Opportunity ](#current-noi-vs-proforma-noi-is-the-whole-opportunity) 4. [04 Why the Same NOI Also Sets Your Down Payment ](#why-the-same-noi-also-sets-your-down-payment) 5. [05 Hold It to Real Metrics ](#hold-it-to-real-metrics) [Home](/)/ [Blog](/blog/)/ [Real Estate](/pillars/real-estate/) Deal Analysis # How to Analyze a Multifamily Deal (the Only Formula That Matters) Value equals NOI divided by cap rate. Walk one real deal through that formula, current numbers versus proforma, and see exactly how a small rent gap turns into six figures of value. July 10, 2026 9 min read Contents 1. [01\. The Formula: Value Equals NOI Divided by Cap Rate](#the-formula-value-equals-noi-divided-by-cap-rate) 2. [02\. Walk One Deal Through It: a 12-Unit Example](#walk-one-deal-through-it-a-12-unit-example) 3. [03\. Current NOI vs Proforma NOI Is the Whole Opportunity](#current-noi-vs-proforma-noi-is-the-whole-opportunity) 4. [04\. Why the Same NOI Also Sets Your Down Payment](#why-the-same-noi-also-sets-your-down-payment) 5. [05\. Hold It to Real Metrics](#hold-it-to-real-metrics) tl;dr Multifamily value comes from one formula: value equals net operating income divided by the market cap rate. Underwrite two NOI numbers on every deal, the current NOI from actual financials and the proforma NOI after you raise rents and cut costs, because the gap between them is the entire opportunity. That same NOI also sets your debt service coverage ratio, which determines your down payment, so a stronger NOI does double duty: it raises the price and shrinks the check you write to close. People overcomplicate deal analysis. There is really one formula that drives everything in multifamily, and once you understand it, you can look at any property and know both what it is worth and how to make it worth more. I have a full eight-number screening checklist for running any small multifamily deal in under 20 minutes in [the fast and simple way to analyze multi-family deals](/blog/the-fast-and-simple-way-to-analyze-multi-family-deals/). This article is narrower on purpose. It walks one real deal through the single formula that everything else in that checklist is built to protect, so you can see exactly how it works before you ever open a spreadsheet. ## The Formula: Value Equals NOI Divided by Cap Rate Net operating income, or NOI, is your operating income minus your operating expenses, before debt service. Rent and other income come in, you subtract the real costs of running the property (taxes, insurance, utilities, management, maintenance), and what is left before the mortgage is your NOI. > Value = NOI / cap rate If a property produces $98,000 of NOI in a market with a 7 percent cap rate, it is worth about $1.4 million ($98,000 divided by 0.07). That is the whole game. Improve the NOI, and the value goes up on a multiple. Your cash flow, separately, is just NOI minus your annual debt service. ## Walk One Deal Through It: a 12-Unit Example Say you are looking at a 12-unit building listed at $1.35 million. Here is how the numbers actually build. Start with gross potential rent: every unit at market rent, fully occupied. The units are currently renting at $775, but comparable units in the area rent for $1,100. Twelve units at $1,100 is $158,400 a year in gross potential rent, a much bigger income base than what the seller is currently collecting. Add other income. This is the extra layer beyond rent: pet rent, storage, parking, and utility bill-back (often called RUBS) at around $100 per unit per month. On this 12-unit, that adds about $14,400 a year. Subtract vacancy, and use two kinds. Physical vacancy is the market vacancy plus any units you plan to hold empty for renovation. Economic vacancy is tenants who are occupying but not paying. Using 6 percent market vacancy, 8 percent for a one-unit-a-month renovation schedule, and 3 percent economic, that is 17 percent total. Gross operating income is market rent plus other income, minus that vacancy, which comes out to roughly $143,300. Now the expenses. Operating expenses run 30 to 50 percent of gross operating income on most multifamily, and 35 to 40 percent on smaller properties. Pull the real numbers from the T-12, and treat anything well under that range as a red flag rather than good news. If a seller's numbers show expenses at 25 percent of revenue, they are hiding something. Ask what they left out. At 38 percent on this deal, expenses run about $54,450, leaving a proforma NOI of roughly $88,850. Run the formula at a 7 percent cap rate: $88,850 divided by 0.07 is about $1.27 million. That is what the property is worth once you have executed the plan, close to the $1.35 million asking price, which tells you the deal only works if you can actually close the rent gap. ## Current NOI vs Proforma NOI Is the Whole Opportunity That is why I underwrite two NOI numbers on every deal, not one. The current NOI is what the property actually produces today, based on the historical financials, usually the trailing 12-month P&L. On this 12-unit, at the existing $775 rents, current NOI lands closer to $58,000, which values the property at only about $828,000 at the same 7 percent cap. The gap between $58,000 current and $88,850 proforma, roughly $30,850 a year, is the entire opportunity. Close it and the property is worth $440,000 more than it is today, on paper, for the cost of getting rents to market. That gap is also exactly what a bank will not lend against on day one; you have to prove it with signed leases before it counts toward your next refinance. ## Why the Same NOI Also Sets Your Down Payment NOI does not just set value. It sets your financing, because it drives your debt service coverage ratio, or DSCR, how many times your NOI covers your loan payment. A typical lender wants at least 1.2 to 1.25, meaning the property has to produce $1.20 to $1.25 of NOI for every $1.00 of annual debt payment. If your annual loan payment on this deal is $80,000, a lender wants to see at least $96,000 to $100,000 in NOI to hit that ratio. The current $58,000 NOI does not clear it, so you either put more money down to shrink the loan payment, or you underwrite the deal on proforma numbers and negotiate seller financing or a bridge loan to bridge the gap until rents catch up. A stronger NOI cuts both ways: it raises what the property is worth and lowers what you have to bring to closing. ## Hold It to Real Metrics I do not buy on value alone. Two return targets have to clear before I move forward. I want cash flow of at least $200 per door per month, which is $2,400 per unit per year. And I want a stabilized cash-on-cash return of 10 percent or better. Run your own numbers fast with [the deal analysis calculator](/tools/deal-analysis-calculator/), which turns a price and rent roll into cash flow, cash-on-cash, cap rate, and NOI instantly. Then use those numbers to decide if a deal like this one even clears your buy box before you spend more time on it. The full six-criteria buy box I use to filter deals in the first place is in [how to underwrite a multifamily deal](/blog/how-to-underwrite-a-multifamily-deal/). Analysis is a muscle, and this formula is the one to internalize first. Everything else, vacancy assumptions, expense ratios, DSCR minimums, exists to protect the honesty of that single number. Get NOI right, run the division, and you know both what a property is worth and exactly how to make it worth more. For the deeper training and worked case studies, come find us at [Addicted to ROI](https://addictedtoroi.com). * * * _This article is educational and reflects my own experience. It isn't legal, tax, or financial advice. Run your own numbers and consult the right professionals before acting._ Addicted to ROI is education and community, not financial or tax advice. Talk to a qualified professional before making investment or tax decisions. ![Jennifer Beadles](/images/founders.jpg) Jennifer Beadles Real estate entrepreneur with 17 years of hands-on investing experience. Built an 8-figure rental portfolio across multiple states and has helped thousands of investors build passive income through the Addicted to ROI community. 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[Subscribe, free →](/newsletter/)[Run a deal in the calculator](/tools/deal-analysis-calculator/) Read next [ ![How to Renovate a Rental You've Never Seen in Person](https://images.unsplash.com/photo-1581578731548-c64695cc6952?w=800&q=80) Investment Strategies ### How to Renovate a Rental You've Never Seen in Person 10 min read → ](/blog/renovate-out-of-state/)[ ![How to Determine Fair Market Rent in a Market You Don't Live In](https://images.unsplash.com/photo-1554469384-e58fac16e23a?w=800&q=80) Deal Analysis ### How to Determine Fair Market Rent in a Market You Don't Live In 8 min read → ](/blog/fair-market-rent/)[ ![The Questions to Ask Before You Buy in a Market You Don't Live In](https://images.unsplash.com/photo-1423666639041-f56000c27a9a?w=800&q=80) Due Diligence ### The Questions to Ask Before You Buy in a Market You Don't Live In 9 min read → ](/blog/market-call-questions/) If you like this ## Read these next Hand-picked to go deeper on real estate. 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