Determining ARV of an apartment building w/out comps

Determining ARV of an apartment building w/out comps

Real Estate Investor · Mukwonago, WI · Member since 2017 · 76 posts · 16 votes

Hi everyone, newbie here. So I'm working on a commercial multifamily building in a really hot market in SE Wisconsin right now. It needs work in order to fetch full market rent, and I'm wrapping it for a great price as far as cash flow goes so long as I can keep the expenses down. Here's the thing though, I'm going to need to either get an equity partner or come up with some way to get a loan or another creative idea to kick the current tenants out and fully rehab the property. But there really aren't any comps that I've been able to find, to tell me what it's actually worth, and what the ARV is. The current appraisal pretty old. I'm just not clear yet on if asking for a new appraisal right now is a good idea or not. I've got to get this price as far in my favor as I can possibly get it right now, and.... well can I even hire a private appraiser anymore without using the county tax appraiser and risking my taxes going up? If I can get a private appraisal does anyone besides me automatically get copies of it? If I didn't make sense here, please let me know, and any advice is greatly appreciated.

 If your in the area, and might want partner with me on this or other projects, please do let me know.  I think once everything is figured out here, this property is going to cash flow really well.  I've got a really motivated seller.  Thank you!

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Rental Property Investor · Toronto, Ontario · Member since 2012 · 538 posts · 298 votes
9y

Justin,

A simple ARV for the property would be the total Monthly Market Rents (after rehab), annualized, less the anticipated vacancy and expenses divided by the market cap rates;

((Monthly Market Rents - Vacancy) * 12 - Expenses) / Market Cap = ARV

Having said that, what you should really be doing is generating a Proforma Income / Expense statement (which needs a lot more detail then above) to get to the NOI. With that and the market cap rate, you derive the 'value' of the property (once rehabbed). There are lots of tools available on the internet (and even here on BP!) to help you do this.

If you can NOT prepare the Proforma (on your own or with your agent / broker), then I think there is a learning curve you need to go through before moving forward.

As to your other question regarding an appraisal; the appraiser is working for you and the report they generate only goes to you unless you authorize it.

Good luck,

Oren

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  • Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    9y

    First off, lets get a few terms correct, the Tax Assessor, may have an appraisal license, but for the county they do NOT appraise the property, second Appraisals are quite subjective, and can be proven, quite wide in value either way. market value is determined by similar sales in the current market, making adjustments for dissimilar items. 

    Second, are you working with a broker on the deal? they can provide comps, but the reality is the internet has all the data you need to determine value.  Learn how to research. Im not going to spoon feed where to look, because if you cant figure out where the info is, you probably are not ready to do a deal like this. Good luck.

  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @Justin Schaefer What you would need to know is the going cap rate for that area. Reach out to a broker who can help fill you in on how similiar properties are performing. Once you have the cap rate for the area you can determine the value by multiplying the annual NOI by the cap rate. Best of luck to you.

  • Rental Property Investor · Fond Du Lac, WI · Member since 2016 · 215 posts · 136 votes
    9y

    Personally I would the the same formula all the others use, cap rate. Seems to cover value on apartment building pretty decent.  If you know your expenses and the internet will give you a cap rate range, grab your calculator and do some work !

  • Rental Property Investor · Toronto, Ontario · Member since 2012 · 538 posts · 298 votes
    9y

    Justin,

    A simple ARV for the property would be the total Monthly Market Rents (after rehab), annualized, less the anticipated vacancy and expenses divided by the market cap rates;

    ((Monthly Market Rents - Vacancy) * 12 - Expenses) / Market Cap = ARV

    Having said that, what you should really be doing is generating a Proforma Income / Expense statement (which needs a lot more detail then above) to get to the NOI. With that and the market cap rate, you derive the 'value' of the property (once rehabbed). There are lots of tools available on the internet (and even here on BP!) to help you do this.

    If you can NOT prepare the Proforma (on your own or with your agent / broker), then I think there is a learning curve you need to go through before moving forward.

    As to your other question regarding an appraisal; the appraiser is working for you and the report they generate only goes to you unless you authorize it.

    Good luck,

    Oren

  • Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
    9y

    Appraisal right now would do you no good.  What I think you are asking for is a projected performa?  I would figure out what the market rents are after rehab.... I would then get my budgets together.... I would then contact a broker or appraiser to help me establish what the market cap would be.. (If you don't know that already)  If it is still a good deal move forward..

    Taxes will not go up unless the sale is substantially higher than the assessment . Even then they may not move, if there isn't any comps as you say..

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