Multi Family Property Valuation

[Aidin Flores]

When valuing a small multi-family deal (2-4 units), how should you go about doing it? Should you make your offer to the seller based on NOI and cap rate, or should you make your offer based on local comps and condition of the property? Online I see a mix of answers so I am not sure which method to go with.

Thanks

[Zachary Ware]

It really depends on who perspective you are looking through. As an investor, you should value the property based on your current target return. If you have certain IRR metrics or $/unit/month, etc. But make sure to consider that an appraisal will value anything with 2-4 units based on sales comparables. You can also get an appraisal to add a 216 form in the appraisal which will provide their opinion of market rent but the value will be derived from comparables. If the deal works for your target returns, then I would move forward. Of course, you should still look at comparable properties to make sure they aren't drastically different than what you are paying. If the property appraises for much less than you are buying for, a lender will often use the appraised value for LTV, not the purchase price.