In this instructional video, Shafiq Hirani, MBA, CCIM explains why cap rates should be treated as market‑derived outputs rather than inputs when pricing multifamily assets. He highlights a common two‑sided error where sellers apply the lowest recent cap rate to their unadjusted NOI and buyers apply the highest cap rate to a reconstructed NOI, creating valuation gaps of up to a million dollars on a $5 million property. Hirani then outlines a systematic approach: first, build a reliable comparable set using five filters—unit count, vintage, sub‑market, condition/unit mix, and financing behind the sale. Second, evaluate the subject property through three complementary lenses—cap rate on the reconstructed NOI, price‑per‑unit, and gross rent multiplier—looking for convergence among them. He demonstrates how a half‑point shift in cap rate can swing value by $900 k on a $313 k NOI property, underscoring the importance of accurate NOI reconstruction. Clean operating statements, complete rent rolls, and transparent documentation are shown to tighten cap rates and improve pricing confidence. Finally, he directs viewers to further resources (broker selection video, a comp‑set worksheet, and a 30‑minute exit‑strategy session) and encourages audience interaction for future content.
Chapters
Cap rate is not something you pick. It is not an input. It is an output. It is what the market hands you after a sale closes, calculated backward from a price somebody actually paid. So when an owner tells me his building is worth $5.2 million because the cap rate in his submarket is 6%, what he has really done is guess with a spreadsheet. I am Shafiq Hirani, MBA, CCIM. Today, how to actually price an apartment building and why the number in your head is probably about 10% high. Quick ask before we get into it. If these breakdowns help you think about your building more clearly, subscribe and leave a comment because the questions in the comments are what I build the next videos from. All right, let us get to work. Here is the 2-sided error that kills deals before anybody negotiates. The seller finds the lowest cap rate that traded in his submarket and applies it to his own untouched income statement. Best cap rate, best NOI. The buyer finds the highest cap rate that traded and applies it to his reconstructed income statement. Worst cap rate, worst NOI. Both of them think they are being reasonable, and the gap between those 2 numbers can be $1 million on a $5 million building. Nobody is lying. Both sides are just doing the arithmetic in the direction they want it to go. And notice that neither side is even using the same NOI. That is the deeper problem. Before you can argue about cap rate, you have to agree on what the building earns, which is exactly why video 2 comes before this one. So let us do it properly. 5 filters for a real comp set. 1. Unit count in a similar range. A 40-unit building does not price like a 9-unit building. Different buyer pool, different financing. 2. Vintage within about a decade. 1960s construction carries different capital risk than 2000s. 3. Same submarket. Not the same city, the same submarket. 4. Comparable condition and unit mix. 3. All studio buildings do not compare to a building with 2-bedroom units. 5. And this is the one owners skip: the financing behind the comp sale. If a building traded because the buyer assumed an existing loan at 3.5%, that price included the value of that loan. It is not a comp for a building being financed at today's rates. Strip it out or you will price yourself high and never know why. Now use 3 lenses, not one. Lens 1: Cap rate on the reconstructed NOI, not yours. His version, the one from video 2. Lens 2: Price per unit against recent trades. Blunt, but it is a fast sanity check, and it is how a lot of buyers think first. Lens 3: Gross Rent Multiplier. Price divided by annual gross income. Crude, but useful. When all 3 lenses land in a narrow band, you have a price. When one of them is far off, that is a signal. Usually it means something in your income statement needs explaining before you list. And a practical note on where comps come from: CoStar and CREXi will give you the trades. Your broker should give you the context, which is the part that actually matters. Why did that one trade tight? What was wrong with the one that traded wide? A list of sale prices is data. The reason behind each one is the comp. Here's what happens when you price high anyway. A building priced 10% high does not sell 10% slower. It doesn't sell at all for a while. It sits. Buyers who looked at it in month 1 see it again in month 5 and assume something is wrong with it. Then it trades below where it would have gone on day 1. And the line that gets pushback Your building is not worth what the cap rate says. It is worth what your operating statement can defend. Most owners have never once tested whether theirs can. Look at what half a point of cap rate does. Take a building producing $313,000 of net operating income. At a 5.5% cap rate, it is worth about $5.7 million. At 6%, $5.2 million. At 6.5%, $4.8 million. Nothing about the building changed. Same roof, same tenants, same rents. Half a point of cap rate moved about $900,000, which is exactly why you do not get to pick the cap rate and exactly why the NOI half is the half worth working on. 4 buildings, same submarket, same unit count, all sold within about a year of each other. 4 different cap rates. The one that traded tightest had clean books, no deferred maintenance, and every lease in a file. The one that traded widest had a rent roll that did not tie, 3 units of deferred capital work, and an owner who would not hand over utility bills. Same submarket, same size. The cap rate difference wasn't the market, it was the file. Here is what to do next. First, watch video 10, Choosing the Right Broker and Marketing Strategy, because who prices your building matters as much as how. Second, download the Comp Set Worksheet— 5 filters, 3 lenses, 1 page. Third, book a 30-minute exit strategy session And I will build the comp set with you. In the comments, tell me the number you have in your head for your building and where it came from. That second part is the interesting one. Shafiq Harani, MBA, CCIM. Keep navigating.
