So underwriting for our Midwest properties is different from underwriting for our Florida properties. In Midwest, we underwrite for the cash flow and in Florida we underwrite for appreciation. And unfortunately, there is not much of appreciation in Midwest and the cash flow is not the best in Florida. So that’s two different two different markets.
But, we have in-house analysts that go through our on-market, off-market inventory. And the first we’re trying to fit them in our in our box and if it fits in the box, then it goes to just someone above analyst and eventually, if it meets all the criteria that we’re looking for, it gets to our committee and then is being decided if this is something that we should pay more attention to or make an offer.
Let’s take underwriting for the Midwest apartments as an example where we underwrite for the cash flow. Going in Cap rate is pretty much irrelevant, irrelevant in our case. It is cap rate that we’re going to achieve at the end of the process. That’s what we’re looking for.
And the cap rate that we’re trying to achieve is six percent. At the end of the day, we’re trying to get our cap to six and to get our cap to six, we have to increase our NOI and lower our expenses. Increasing our NOI comes with bringing value, additional value to the apartments at acquisition.
We’re like I said, every amenity holds some sort of value which which allows us to increase our rents. People are willing to pay for them. People love to see these amenities. Net operating income is a difference between your income and your expenses. So by adding value to apartments, we’re increasing our income and income is comprised of actual rent and other income.
When we buy apartments, the other income is usually around two or three percent. By the time we’re done with it, our other income is about 10 to 12 percent so that alone brings NOI much higher. Not even mentioning prices of prices of units per square foot. At acquisition, they usually less than a dollar and we usually bring them to about $1.30, $1.40 a square foot.
