We are looking at a 4 unit in a good area close to downtown it needs almost everything. The owner has gutted it but I think he should have gutted everything but that's beside the point. The problem I think is not having enough parking. The building would be 4 2brd 1ba. Units with only four parking spaces. The owner has done some framing and started some plumbing but is in a holding pattern right now. I think that's a negative and could hurt the rental potential is that a fair assessment?
Rents in the area are anywhere from 600-1200 so I thought to be safe 900 is a good bet. We will have one of the nicest rentals in the area though.
He's asking 160 in it's current condition so at 900 assuming 7% cap-rate I'm getting $308,000
I would look to your building codes for new units as to the parking requirement, with the ADA, larger complexes will be effected as to the parking count per unit. 1-4 single family may not be covered but that should give you an idea of the statistical requirement based on concentrations.
I would want at least 1 1/2 spaces per unit with a 1-4, meaning 6 spaces with a 4plex.
If this is "downtown" your market may be different too, many urbanites walk, take public transportation or bike and won't own a vehicle, look to the make-up of the tenant base.
Look to comparable units and what parking might be.
As to valuation, parking space adjustments will be objective, guess, I would use the cost approach of adding additional parking. If the lot is to small I'd look to the land valuation and deduct from comps for the lack of area and together come to a value for adjustment.
You can also look at the income approach and adjust vacancy rates a bit higher to assume fewer tenants, that will reduce estimated income and value.
Blending these aspects to arrive at a reasonable adjustment is an art, depends on the location and expectations of the market.
An appraisal may be worth it to you, if you're obtaining a loan, don't sweat it, speak to the appraiser about your concern or at least your lender to convey the concern. Your contract is subject to financing and you can make your contract subject to a satisfactory appraisal addressing the parking impact of rents. If it doesn't appraise, you're out or you can make up any difference or accept the matter and close. Good luck :)
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