Developer · Newport Beach, CA · Member since 2016 · 71 posts · 25 votes
I have read through all the ARV articles but they seem geared towards single family homes. How do you estimate ARV for a multifamily? From what I understand, rental property values are more based on the cash flow than "comps", thus, does the ARV even matter? Is there some multiplier I can use based on NOI to determine ARV quickly?
Wholesaler · Saint Augustine, FL · Member since 2016 · 328 posts · 98 votes
10y
I typically use ARV = pro forma NOI/market cap rate.
Be careful with this as there are many factors affecting this number. Be diligent in trying to achieve "as accurate a pro forma NOI as possible" (if you will) and make sure you procure your market cap from a viable source.
Hopefully that's what you were looking for!
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
10y
There is no ARV for true (5+ door) multifamily. Looks don't matter, it's all a function of how much you can increase NOI and what the market cap rate is when you sell.
Developer · Newport Beach, CA · Member since 2016 · 71 posts · 25 votes
10y
What I did was run a comp for properties that were sold in the area that have the same gross income/roughly same # units as the subject building would generate (I know the going rental rates for said units in this area already) to determine average sales price as the "ARV" since this property is currently vacant. Is that an acceptable way to do it? I understand ARV is useless but the rental calculator requires it so I wanted to input an accurate number so it doesn't screw up the pro forma.
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
10y
My advice is to stay away from commercial property until you understand how it's valued, and can perform a proper due diligence and valuation. The #'s are big enough in multi-family that mistakes can be very costly. You might want to consider hiring an experienced MF mentor to assist in properly evaluating the transaction. The cost may seem high until you realize how much buying a bad deal can cost you!
Developer · Newport Beach, CA · Member since 2016 · 71 posts · 25 votes
10y
I appreciate it, but I was simply asking about how to input ARV into the buy and hold calculator here on BP. I have a mentor but he's very old school and doesn't use the internet or fancy things like the calculator. I just want to know how to use the calculator for MF, 99% of it I understand, it's just coming up with the ARV that is hard for me. Do you have any specific recommendations on that particular question?
Again, I understand ARV is a misnomer for this type of property... but the calculator REQUIRES it to be input so I have to put something in there.
Developer · Newport Beach, CA · Member since 2016 · 71 posts · 25 votes
10y
I am bumping this, I never got a satisfactory answer. The buy and hold calculator requires you to enter an ARV, and since multifamily properties' value is based on profitability, I don't really see a way to get around this without just entering some random number which could screw up the report and defeat the purpose. Short of paying for an appraisal (which would be rediculous when simply trying to suss out if a property is a worthy investment or not), how the heck do you figure out an appropriate number for the ARV field?
Please do not just tell me to "hold off on multifamilies". That's not relevant to my question and the niche I am going into IS multifamily so staying away just because I can't get a proper answer doesn't really make sense.
Looking forward to someone being able to answer this question for me. Someone experienced with MF units on this site MUST use the BP buy/hold calculator, and if so, must have a way to input an ARV value into the form so I want to know what that is. Thank you!
@Brandon Turner is this something you can help with, I know you helped make the calculator.
Wholesaler · Saint Augustine, FL · Member since 2016 · 328 posts · 98 votes
10y
I typically use ARV = pro forma NOI/market cap rate.
Be careful with this as there are many factors affecting this number. Be diligent in trying to achieve "as accurate a pro forma NOI as possible" (if you will) and make sure you procure your market cap from a viable source.
Hopefully that's what you were looking for!
I am bumping this, I never got a satisfactory answer.
Direct sales comparison is the way to go. You will not find market cap rates and it is a less accurate method anyway. Use GRM is pretty easy if you have sales prices and rents of comparable properties. Other cross checks would be to look at NOI per sf or per unit. Price per sf or unit. Rent per sf or unit.