Valuing small multifamily 5-10 units

[Thomas Hickey]

Hello, Looking into purchasing a 5-10 unit property north of Boston. I was always taught that the value of a commercial property is NOI/ cap rate= value of building I have done my research and determine my cap rates based on comparable sales. When I make an offer based on this math it is typically much lower than what the seller is looking for. Underwriters are unlikely to approve a loan that is say $150-200k more than this correct? Thanks, Tom

[Lennon Lee]

Thomas,

Your formula is correct. If you have done your research correctly and have consulted with experienced brokers in the area about what Cap Rates have recent properties traded for, then your numbers should be fine.

As everyone has mentioned here, the problem is about other people's willingness to overpay in a hot market and get the property at a much lower cap rate.

Don't give in to that and keep playing the game under a conservative approach. 

One advice I would give you is to focus on building strong(er) relationships with brokers and property owners and do it from a genuine place. Try to add value in whatever way possible and with patience, you will reap the rewards in the form of potential deals coming your way without the need to overpay.

Happy Investing!