How to analyze a single family portfolio?

Question

What is the best route to analyze a single family portfolio?  Income approach using a Cap rate?  Sales Comparison approach?

Situation:

A broker sent me a deal of 88 single family properties(~100,000 SF)all on the same street/neighborhood.  The asking price is 6.2M.  Fair Market Value in the area for a single family is $100/sf... thus valuing the properties at 10M...

If I analyze the property by using the CAP rate for the area(area CAP rate for Multi-family is 8%) then the property is valued at $5.3M....

Which should I use?

Chris Jackson · Answer

@Hunter Estess you can use a multifam cap but at the same time be careful to not see other opportunities the SFR portfolio model.

You can in an SFR portfolio also rehab SFRs to the next level and sell off individually for higher prices to owner occupied buyers.

We like to say that we view our SFR portfolios as an SFR portfolio with a multifamily lens. One needs to be careful though because you lose some aspects of economies of scale for that same 88 unit single complex for instance. But you do gain some other positives that come from buying right in the SFR game.

The biggest factor in SFR portfolios are who is the the team that will manage the SFR pool. How far apart is the pool? If close together thats great but if far apart you need to account for in increased cost for your manager or if you get big enough have your own team ;)