Real Estate Investor · Albuquerque, NM · Member since 2011 · 156 posts · 20 votes
How do you exactly go about when evaluating a deal on a fourplex? I understand CAP rate, but how do I know how to determine what the ARV is? They are kind of tricky because they are residential/multi units, so finding comps would be somewhat difficult, do I just base my offer on a good cap rate?
I would use this formula if you have all the data.
Gross Rent
-Vacancy factor (I use 5-10% depending on area)
-----Net Rent-----
-10% Maintenance
-10% Management
- Taxes/Insurance
- Utilities
----------------
NOI @ 10% cap
When no comps are avaliable you can use current market rents, talk to a mortgage broker in that are, find out price per S.Feet, and they should be able to give you a maximum loan amount that rents will justify, changes from FHA & conv. but let him figure out MAX loan amount for FHA financing add thae down payment and you bill have the maxi. loan that market rents will justify and a lender will accept in order to fund the deal, the appraiser can then go outside the area and use 3 units if needed, but if rent numbers don't work no normal funding will work, so work the #'s backward = ARV.
If you use a paid site, like realquest.com, you can target only multi's when pulling comps. But, you can go out much farther, like up to 4 miles, I think. When pulling comps on SFR's, you go out half mile, or mile, at the most. But multi's aren't as common, so set your parameters out farther from the subject property. You should be able to pick up some comps. Then, calculate the p/sq ft and multiply it by the sq ft of the property.
Figuring ARV is tricky these days. Much of it comes by way of gut feeling...