Hi Justin. Thanks for your question. Yes, cap rate and NOI can undervalue a low occupancy building. It’s a good idea to look at average occupancy rates in the area and see what other apartment buildings are worth at different occupancy rates. These can generally be found through a commercial real estate broker. When deciding what offer to make, take into consideration the building’s replacement cost, the value of the land and the potential future income, as well as how much time and money it will take you to get to a high occupancy rate. Unfortunately, it’s not usually a simple formula, but instead an analysis of all of these factors.
Here’s a helpful article on buying an apartment building
Best of luck,