The number-one question owners ask us is "what's my building worth?" — and the honest answer is that it depends on one thing above all: how much income the building produces. Unlike a single-family home, an apartment building isn't priced on what the neighbor's house sold for. It's priced on its cash flow. Here's how that actually works.
The core formula: NOI ÷ cap rate
Commercial multifamily value comes down to net operating income (NOI) divided by the market capitalization rate (cap rate). If a building throws off $100,000 of NOI and comparable buildings trade at a 7% cap rate, it's worth roughly $100,000 ÷ 0.07 = about $1.43 million. Change either number and the value moves. That's why growing income and understanding your submarket's cap rate are the whole game.
How to calculate NOI
Net operating income is all the income the property collects minus all the operating expenses — before your mortgage. Build it up like this:
- ✓Start with gross rental income at market, plus other income (laundry, parking, storage).
- ✓Subtract a vacancy allowance — no building is 100% full year-round.
- ✓Subtract real operating expenses: taxes, insurance, utilities, management, maintenance, turnover.
- ✓What's left is NOI. Note: your mortgage payment is NOT an operating expense — cap-rate math is done pre-debt.
The most common mistake owners make is understating expenses (or excluding property taxes that will reset after a sale), which inflates NOI and leads to a disappointing gap when a buyer re-underwrites the building.
Where cap rates come from
Cap rates are set by the market — they reflect what buyers will pay per dollar of income, and they move with interest rates, perceived risk, and demand for a submarket. A stabilized building in a strong DuPage school district commands a lower cap rate (higher price per dollar of income) than a management-heavy building in a tougher location. Cap rates differ meaningfully across Chicagoland, which is exactly what our market report tracks.
Price per unit and price per square foot — the sanity checks
Experienced buyers cross-check the income value against price per unit and price per square foot versus recent sales. If the income approach says $145,000/unit but every comparable building traded at $110,000/unit, something in the assumptions needs a second look. Good valuation triangulates all three.
What raises your building's value
- ✓Raising rents to market (the fastest lever — every $50/unit/month compounds through the cap rate).
- ✓Adding income streams: RUBS utility billback, parking, storage, laundry.
- ✓Cutting controllable expenses and appealing an over-assessed tax bill.
- ✓Improving unit mix and reducing turnover.
- ✓Clean, well-documented financials that let a buyer trust your NOI.
BOV vs. appraisal vs. online estimate
An online "estimate" doesn't understand commercial income and will be wrong for multifamily. A formal appraisal is ordered by the buyer's lender during due diligence. What you want up front is a broker's opinion of value (BOV) — a free, comp-driven estimate of what your building will actually trade for today. That's the starting point for any sale or valuation.
Frequently Asked Questions
What's a good cap rate in Chicago?
It depends heavily on submarket and building quality — stabilized suburban product trades tighter than value-add city buildings. Rather than a single number, we'll show you the cap rates comparable buildings are actually trading at in your area.
Does my property tax bill affect the value?
Yes, directly. Property taxes are one of the largest operating expenses, and buyers underwrite what taxes will be after a sale — a reassessment can lower your effective value. See our post on Cook County reassessment.
How do value-add renovations change the price?
Renovations that raise rents or cut expenses raise NOI, which raises value through the cap rate. But over-improving right before a sale can be a mistake — sometimes it's smarter to sell the upside to a value-add buyer.
Is a broker's valuation free?
Yes. Our opinion of value is free and comes with no obligation to list.
Want a real number for your building? Request a free valuation or call (630) 895-7989.