So it is my understanding that multi-family properties that feature more than 4 units are appraised based on their NOI and Cap rate. I understand the math behind that, so no need to dig there.
My two questions are:
1. How to you determine the cap rate when the market value is the number you are trying to calculate (ie an unknown)? Is it just based on the contract price at time of sale, thereby permanently locking in the rolling market value cap rate of the property, or is it based on the cap rate of similar properties in the same market?
2. Does this valuation principle apply to all apartment buildings with 5 or more units, provided that all units are legal?
When I am looking at listings and no cap rate is given but I have other information I usually use this to at least try and determine what cap rate they basing the price listed on. http://www.proapod.com/calculator/free/o_cap.php if nothing else it helps to understand the calculation.
Thank you for this information, it’s very helpful. I do have a question, how do I find the market valuation on a property I want to offer less on so the market valuation equals that lesser price? Which I believe reflect a more accurate market valuation.
Thank you in advance for your help I look forward to hearing from you.