Lender · Tampa, FL · Member since 2015 · 63 posts · 44 votes
When determining whether a multifamily property is over or under-priced, how should comps be considered?
Ideally I would image we would try to compare them to other multi-family homes for sale in the area, but if there are none and we have to go by single family home values, how do we evaluate whether or not the multifamily unit is a good deal or not? For example, for a 2 bed 1 bath (each) duplex, would we divide the sale price by 2 and compare to 2 bed, 1 bath homes in the area? Or would we compare the whole sale price to 4 bed, 2 bath homes in the area?
Income-producing real estate is not valued via comparative market analysis. The value is in some way a function of income/income-potential. Therefore, underwrite the income, and then determine how much it's worth to you following whatever model you prefer.
Income-producing real estate is not valued via comparative market analysis. The value is in some way a function of income/income-potential. Therefore, underwrite the income, and then determine how much it's worth to you following whatever model you prefer.
Thank you @benleybovich. I knew that larger apartment complexes were evaluated differently, but I didn't know that it would also be the case for, say, a simple duplex among single family homes. Thank you for your answer!
Thank you @benleybovich. I knew that larger apartment complexes were evaluated differently, but I didn't know that it would also be the case for, say, a simple duplex among single family homes. Thank you for your answer!
There are several income-approach mechanisms. GRM method looks at the gross revenue and multiplies it by an appropriate coefficient, called multiplier. You bank will use this for 4-units and less. CAP Rate approach is used for larger. And, it is true that the smaller multi will be looked at relative to comps as well...
Having said this, you are buying it for income, right? And if so, what do you care how it comps - here's the building - here's the income you think it'll produce - what's that worth to you?
Simple...not really, but this will get you thinking correctly. And now you study :)
Ben is right, a conventional lender has there way of obtaining a value (Comparable sales, w/ small emphasis on Income), but you should have your own method of obtaining YOUR value.