When dealing with an appraisal on a 4-unit, that you feel has been significantly undervalued based off the comps the appraiser pulled. What is the best way to challenge the appraisal? I'm assuming by using the cap rate to determine the value instead of the comps alone? When determining the cap rate for an area, and many of the properties do not post accurate net operating incomes - what is the best way to estimate? I heard dividing the gross income/rental income by half is best way to estimate net operating income? Multiple questions here I know, thanks for your help!!! (I'm specifically interested in proving the cap rate in Lincoln Park for a 4-unit building).
Unfortunately the NOI and Cap rate are irrelevant when appraising a 4plex.
It is general practice for an appraiser to value your 4plex based on recent sales of similar 4plexes... I know, it’s unfortunate and ridiculous.
Here in Oakland, 4plexes that rent for $4,000/month are valued almost identically to those renting for $8,000/month.
This single reason is why I made the move into 5+ units. Forced appreciation is the quick path to riches.
@Stefanie Campbell As @Saj Shah has pointed out, 1-4 units are values are not valued off the income approach (cap rate). Instead, they are valued using the comparables approach i.e. what is the value of similar properties in your neighborhood. This is because 1-4 unit buildings can qualify for residential loans, 5+ unit buildings are considered commercial.
Forced appreciation only applies in commercial properties - multifamily, storage, mobile home parks, warehouses, office buildings etc.
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