How to find ARV for 10-unit Franklin Park

Question

Hello my Chicagoans and others, hope you're staying warm on this frigid day!

Looking at a 10 unit (all units 1bd/1ba) and don't feel comfortable giving client an ARV price because there's not much data for these type of properties in the vicinity of O'Hare airport that I have found. I've looked in Schiller Park, Elmwood Park, Melrose Park, Franklin Park, and the other villages/towns that surround Chicago's O'Hare airport.

I was able to calculate the rental prices for the units after they are rehabbed. Currently they are fetching $750, but some of the tenants are 10-15 year tenants and that is the reason the rent is low. Units are in very suitable condition, but after seeing some comps for updated 1bd/1ba apartments in the area, I believe the units could bring in $1,150. The pro-forma (I know to take this number with a grain of salt) comes out to $5,081 in net profit per month after expenses, management, vacancy, and maintenance has all been accounted for.

Based on netting let's just say to be conservative $4,000 per month after rehabbing the units, what do you feel that the asking price for a 10-unit (1bd/1ba mix) that brings in $4,000 per month could go for near Franklin Park?

Cory J Thornton · Answer

@Joe Freeman - I'm not in your market, but my first thought would be, "what is the cap rate in the area?" It sounds like you have the info needed to get down to an NOI. Using an income approach you should be able to take your NOI, figure the cap rate in your market, and project an after repaired value.

Crexi has some great tools that I will use to help me frame up value on hard to price commercial properties. Co Star and Loop net probably all have similar features, but Crexi is usually my go to.

I know that tons of hours can get poured into determining value in hard to comp areas ... best of luck with that process!

John Warren · Answer

@Joe Freeman I am pretty sure the agent listing it doesn't even know what a cap rate is.... this is pretty common when you look at stuff on the MLS. The deal probably doesn't make sense. You won't find any comps in the area much above 100k per door, and this deal will have a lot of violations if/when they finally get the town inspection.

Justin Moy · Answer

NOI divided by cap rate. Not sure what the cap rate in the area would be, but if it's 5% as an example and your annual income based on your projected income and expenses is $50,000, you'd take 50,000 / .05 = $1M.

John Warren · Answer

@Joe Freeman I am pretty sure I have been in the 10 unit you are talking about. I doubt you can get anywhere near $1,150 for rent, and I would guess your real rental rate for a nice unit would be closer to $950-995. You also would want to dig into the town inspection as Franklin Park, like many near western suburbs, has a rigorous point of sale inspection.

For comps, you will find plenty of comps on Costar or a similar platform. This is a space where most of these buildings are sold by brokers focused on commercial RE who have access to different tools than the MLS.

Matthew Masoud · Answer

Value = NOI/Cap.

You have NOI (which is the hard part in my opinion). Do some market research and find what CAP rate multifamily property is trading at in the area.

My guess is you'll probably be around that 6% +/- 1% mark.

So $60,000/.06 = ~$1,000,000

Henry Lazerow · Answer

I would run the 1brs around $1000 maybe $1050. For ARV pull comps of similar suburb 1br buildings over 8 units to figure what they selling at. It's not exactly off a cap for these smaller size 5+ buildings like it is the 30+ unit buildings.

Joe Freeman · Answer

Was negotiating for a 675-700k max so was trying to stay below 75k unit with that. I couldn't come up from that number for it to make sense for the parties involved.

Drew Sygit · Answer

You would use a CAP Rate dependent on the Class of the property.

Joe Freeman · Answer

Yes, you probably have, it was on the market since last year. Also, I wanted to keep comps within the last year and multifamily properties nearby that side didn't seem to find much. Also, just the price that's being asked is not accounting for an investor who would be putting money aside for both vacancies and maintenance, and paying for property management.

How to find ARV for 10-unit Franklin Park

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