Calculating ARV for an 8-Unit When There Are No True Comps

[Joseph Escamilla]

My partner and I are evaluating an 8-unit multifamily property and trying to determine ARV, but there are no truly comparable sales in the immediate area.

Current NOI is approximately $70k, and based on underwriting, we believe we can increase NOI to around $85k through rent optimization and light cosmetic rehab.

Our questions:

• Is ARV essentially calculated by applying a market cap rate to the stabilized NOI (i.e., Value = NOI ÷ Cap Rate)?
• If so, how does an appraiser determine the appropriate cap rate when there are no direct comps? Do they rely on broader market data, investor surveys, or nearby submarkets? Would they pull data from smaller 4-6 unit properties?
• How do appraisers factor in:
• Property condition and deferred maintenance
• Price per unit metrics
• Lack of similar sales (especially for small multifamily like 5–10 units)?
• In situations like this, how conservative should we expect the appraisal to be when we're attempting to force appreciation through increased NOI?

Our concern is that while the deal appears strong on an income basis (good in-place rents relative to price), it may not meet our target ROI unless the increased NOI is fully recognized in the valuation.

Would appreciate insight from appraisers, or investors who’ve dealt with similar situations.

Thank you !

Joe

[Greg Scott]

You are mixing single family and apartment vernacular.  Remove "comps" from your vocabulary.

You have an existing NOI. You just need to know the prevailing cap rate is for properties like the one you are looking at. Smaller properties tend to have higher cap rates than bigger ones. If this is in a B or C class neighborhood, the prevailing cap rate is probably in the 6-7% range.

At NOI of $70K would put the current value of the property at $1M to $1.16M. If you can improve NOI to $85K that would put the value to $1.21 to $1.42M.

Of course, if you are using this to try to estimate what sort of leverage you can get, the valuation is somewhat irrelevant. The NOI will drive the loan size, and most loans are limited by their DSCR, not their appraised value.