Determining a local market cap rate for small multifamily

[Rick Bevilacqua]

When you are underwriting a small multifamily deal, for example, 4 to 10 units or more, in a tertiary market with C & B-class properties, what is the best way to determine a safe cap rate for your subject property? My purpose in doing so would be to determine either resale or refi valuation, after Repairs, rehab, or overall repositioning of the property.

Any advice from experienced multi family experts would be much appreciated!

[Ian Stuart]

Quote from @Rick Bevilacqua:

@Ian Stuart isn’t that contrary to the whole commercial multifamily logic for valuing properties; Income based rather than comp based?

Rick multifamily investment markets are just that - markets. Markets change and fluctuated based on where buyers and sellers are willing to meet. Sale comps reflect where they are meeting. You need to pull sale comps to accurately value a property in order to determine an appropriate stabilized cap rate, $/door, $/rsqft in conjunction with accurate NOI underwriting.

Every multifamily appraisal has three sections: income approach, sale approach, cost approach. This is where it all comes together re: valuing multifamily assets.