Evaluating multi fam ARV with SFH comps?

Question

Hey all! I value all your feedback as you all always have great advice.

When evaluating ARV for a multi family (2 units), do you use average sqft of multi fam only or do you look at SFH as well?

The area we're looking only has 4-5 comps in the last 6 months of multi fams. In addition, the SFH seem to be going for more per sqft in this area. The realtor is telling us we should be using SFH as comps in addition to multi fam since there's not many comps to compare. I was thinking we should be comparing multi fam to multi fam only.

Anyway, I'd appreciate any advice from you all. I'm getting closer and closer to my first properties thanks to you all! Thank you much!

Brie Schmidt · Answer

@Amber Scavone -you would never use a SFH to comp a 2-4 unit.

John Franklin · Answer

Brie is correct, the Realtor is not.

Price PSF works for comparing owner occupied SFR but if you apply that data to a multi family income property, you’re not considering the potential value to the most probable purchaser, who is almost always an investor, not an owner occupant.  The first cares more about cash flow, the latter not so much. Makes a big difference.

Save yourself loads of future agony and call a local RE appraiser and for a few hundred dollars they can appraise it “as is” and after renovation” using only 2-4 multifamily comps (sale and rental) Then you’ll know your numbers.

MFR and SFR typically rely on different approaches to value.

Marc Winter · Answer

@Amber Scavone the only thing a one-family has in common with a 2- 3- 4-family is that they are considered residential property as opposed to 5-fam and up are 'commercial'.

That does not mean you can use $/sq foot for comparison.  You'll really need like-to-like comps.  If there are no close or recent comps, you can spread the radius out a bit, or back in time a bit, which is what an appraiser would do.

Amber Stout · Answer

@John Franklin Great advice. Your explanation makes a hell of a lot of sense about each having different approaches to value. I will just reach out to appraiser as those numbers will be accurate. Thank you so much for your input. It's very helpful and means a lot.

Amber Stout · Answer

@Marc Winter Thank you very much. I will spread out radius and / or go back in time. Very helpful. I appreciate you!

Amber Stout · Answer

@Brie Schmidt Hey Brie! Thank you so much for your input. I spoke with a couple of investors who have been doing this for awhile and it seems like everyone evaluates 1-4 units differently. It sounds like ideally you would want to compare multi fam to multi fam however I have heard some investors say to just use price per sq/ft to eval regardless of  multi/SFH.  I think on this situation, I'll just compare price per sq/ft WHILE taking multi fam comps into account as they have been selling for less per sq/ft.

Evaluating multi fam ARV with SFH comps?

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