Beyond the PPM: What Makes Great Real Estate Deals

In this video, we go beyond the PPM (Private Placement Memorandum) to reveal what truly drives a successful investment. While the PPM is a necessary legal formality, it’s the deal details that make or break the opportunity. We break down how to evaluate a deal for growth potential, purchase price, location, job drivers, demographics, market comparables, execution plan of the value-add utility reimbursements, cash flow, expenses, depreciation, cap rates, rate caps, and the capital stack-key factors that determine whether an investment is truly solid.
Discover what a great deal looks like and why understanding these critical elements can make all the difference in your investment strategy. Whether you're a seasoned passive investor or just starting, this video will help you focus on what really matters when assessing investment opportunities.
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[@Rpc5765]

My question is what would have to happen for a cap rate to change? Is it all market based or also property based?
For example. What about a 100 unit property at 80% occ and 10% under market rent with the following.
$25k NOI at 10% cap rate = $250k
Then rents are raised to market and occupancy is 100%. Why doesn’t just cap rate only rise and value fixed like this? Now the property is just more profitable.
$33k NOI at new 13.2% cap = $250k.
Or is it more like any increase in NOI doesn’t affect cap rate and just raises the value like below?
$33k NOI at 10% = $330k
Or does the better occupancy and market rent lower the risk and cap rate like below? If so how is new cap rate determined? Based on the property or the market? Or supply/demand? For math sake I used 8%.
$33k NOI at 8% = $412,500.

[@mikhailzemtsov6199]

Hi!
Thank you for your question. The short answer would be that the cap rate is a market metric. It reflects how much investors will pay for a particular property class. It can be affected by such factors as Interest Rates & Cost of Capital, Market Supply & Demand, Economic Conditions, Property-Specific Risk Factors, alternative investment Yields, etc. So, the Cap rate is a market metric. But it’s also important to understand that it varies from one asset class to another and from one submarket to another. The difference could be rather significant. So, underwriting must be precise, analyzing specific asset classes and locations.
As for the property metrics, assuming that the cap rate is fixed at 10% in your example, this is the most common case:
Was $25k NOI at 10% cap rate = $250k, changed to$33k NOI at 10% = $330k. So, the property's value is growing because of the NOI growth.
However, due to the abovementioned factors, the Cap rate can be changed to 8%. Then, the property value will receive two boosts: one due to the increase in NOI from $250K to $330K and another from the compression of the Cap Rate from 10% to 8% ($33k NOI at 8% = $412,500), which will increase the property value from $330K to $412K.