Phoenix, AZ · Member since 2017 · 2 posts · 0 votes
Newbie question:
I heard varying answers to this question, but what is the basis of small multi family home value. I've heard some people say that once you get into multi family rather than single-family the comps are based, not on the neighborhood or other houses around it, but on the income you can make. But I've heard other people say that four-plexs and below are basically still comped in the same way as single-family homes. What's the real answer?
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Oh. If it was just based on NOI then an empty building would be worth $0 (or less). Or the NOI of a brand new class A would be worth the same as a beat down Class C with the same NOI.
Beloit, OH · Member since 2016 · 49 posts · 13 votes
9y
we recently closed on a triplex that is pretty much in coal country Ohio, when the appraisal came back the comps where in towns/city's over 25 miles away.
I'll have to look again but it had 5 sale comps and 3 rental comps. Both of which were way higher bc of the location and the included utilities. Me personal I don't think the comps were correct to use but there was nothing else in the area.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
That's BS. Multifamily, even large multifamily, is ***NOT*** just appraised based on NOI and a market cap. The appraisers very much look at sold buildings to see what they trade for on a per door type basis.
Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
9y
Four units or less is considered residential and therefore they use comparable sales to calculate the value of property. This is a residential appraisal. In certain areas, there are not a lot of comps so they will expand there search.
Five units or greater are defined as commercial property and requires a commercial appraisal which relies on the income method for analysis. NOI is critical for determining value along with the CAP rate. NOI of $2000/month with a CAP rate of 7% will provide a value of 24,000/7% = $342,857.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Oh. If it was just based on NOI then an empty building would be worth $0 (or less). Or the NOI of a brand new class A would be worth the same as a beat down Class C with the same NOI.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
9y
Cody, a Class A building and Class C building would have different Cap Rates, so even with the same NOI they will have different values.
And yes, an empty building may very well be worth $0 or less--if there are environmental concerns, for example. The cost to clean up the property can be more than a comparable vacant lot would. In that case, yes, it has a negative value. You see similar things happen in bad neighborhoods all the time (think Detroit) where it will cost more to demo an existing structure than the empty lot is worth.
At the end of the day, an item is only worth what someone is willing to pay for it. Whether we're talking about real estate, a diamond ring, or a television. That's why you see cap rates fluctuate with the market.