How to value a Duplex?

Question

Ok, newbie question I guess...when I'm looking at a duplex vs a SFR and I'm looking to sell is my research for it's value based on it's NOI or just with what other duplex's in the area sold for? I'm thinking about making an offer on a duplex and I'm getting a bit confused. But that could be because I have to wake up in about 4hrs...

Liam Goble · Answer

@John McCormack I just went through a reappraisal of a duplex I own.  I provided all of the paperwork for the rent roll ($1170/month total income) as well as rebuild costs.  The appraiser did not even consider the income approach or the rebuild approach, strictly the comps.

Steve Babiak · Answer

For lending purposes, the appraiser will use comparable sales. The appraisal will also have a section where the income approach can be used to set value, but comps are usually used for setting value for a loan.

Now, for determining value as an INVESTMENT - I suggest you want your investments to produce income, so you should be looking at income produced. Because investments might have to be sold in the future, you also want to buy for prices below the comps ...

John McCormack · Answer

Ahhh, ok...that's what I thought. I had heard mentioned before that it was something to do with their income producing capacity but also heard that that's not a factor until you're looking at 5 units.  Right now, I'm simply looking at a triplex that we'll owner occupy right now. Thanks much for all the feedback! Much appreciated and if you're every in South Florida, let's meetup!

Jared Anderson · Answer

Everybody is right on the money with sales comparables!  The best way to figure out how to value a property is learn how another hypothetical buyer is going to be able to finance a purchase of your property.  It's important to know what your buyer's purchasing power is. 
	
	Loans on a 2-4 unit residence are typically subject to Fannie Mae guidelines which require a standard appraisal.  The sales comparable analysis is going to be the primary valuation method in that appraisal.

Jerry W. · Answer

Price is based on area sales.  It is my understanding you do not use rate of income until you hit 5 units and it becomes considered as commercial property.

James Wise · Answer

Area comps.

Marco Santarelli · Answer

Hi @John McCormack,

It's a good question.  All residential properties (1 to 4 units) are valued based on the comparable sales approach (using "comps").  You can run your own analysis using it's cap rate and the local area cap rates, but your sales price and appraisals will be based off the nearby comparable sales.

Good luck!

How to value a Duplex?

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