How to Value a Multi Under Construction & Vacant

[Dulce Beltran]

I came across a 14 unit Multi completely under rehab and for sale at $2.4M. Current investor replaced sewer line, plumbing, electrical, added HVAC (had wall units), new siding, a few units have insulation, others down to studs. 8, 1 bed, rent $950-$1100 (depending on finishes), and 6, 2 bed, rent $1450. Property in A/B neighborhood. States still needs $175K-200K to complete project. Cap Rate 6%-7%.

My question is how does one value the property if there is no current income? Is this a cost to build analysis? 

[Scott Choppin]

Value it that same as any apartment project:

1. check rent comps for similar units

2. call property managers to give comps for operating expenses

3. call brokers for cap rates of similar sales of apartments

4. run numbers: Rent - vacancy allowance - op ex = NOI/cap rate = value

5. deduct the closing costs, broker fees, and the costs to complete = your offer price

Make sure to vet the completion costs, this is ripe for lowball on the completion costs. Also, make sure you are very clear as to why they are selling incomplete, why would they not do it themselves, i.e. complete and max the value for sale? My questions, what's wrong with this deal that they are not telling you.

~ Scott