Overview · What & why
A decision, before a calculation.
Value can change because income improves, market capitalization rates change, or both. Distinguishing those drivers helps evaluate the original business plan. Renovation spending is not automatically value creation; the increase in value must be compared with the capital, time and risk required to produce it.
A concrete example
An extra $100K of sustainable NOI at a constant 6.5% cap adds about $1.538M of implied value. If achieving it costs $1.2M, the simple margin is about $338K before timing, fees and risk. A higher exit cap can erase that margin.
What to remember
Separate operating improvement from market repricing.
Before using this in a project: As-is and stabilized NOI, comparable valuation assumptions, incremental costs and dates.