Just add your rehab costs together with the acquisition costs and divide the NOI by that.
Example: bldg has $80,000 NOI and purchase price is $1M, equals a cap rate of 8%. Same bldg, but you are going to do $1M of rehab to it after the purchase. So, now your "cost basis" is $2M. So, $80,000 NOI divided by $2M equals a 4% cap rate.
Feb 3, 2011