If a find an empty multi unit property, how should I value it and do I use comps to determine how much to pay for it?
How many units are you talking about?
If it's 4 or less then it's valued by the comps.
If it's 5+ units then it's strictly valued on income.
@Brian Garrett Agreed, commercial properties should be valued on income alone. However, if the property is vacant, how do you underwrite the opportunity to create a deal?
Personally I would use an income approach regardless, especially if the units are vacant. I'd find good rent comps to determine what an achievable rental rate might be. I'd build a year 1 direct cap cash flow using the gross potential rent and apply a reasonable vacancy rate based on what the market dictates. I'd build out expenses based on comps, personal experience and financials provided by the seller. Don't forget to include some sort of expense for replacement reserves for CapEx which may be looming in the coming years. I'd also do some due diligence on the property taxes since the sale of the property could potentially trigger a re-assessment. Apply a reasonable market cap rate and that is your stabilized value. However, as you noted, the property is vacant. Therefore I would deduct the cost of leasing the property up inclusive of any improvements needed to get the units ready for market, as well as the lost income during the time it will take you to lease it up. So long as you make reasonable assumptions, that should get you a range of value you can get comfortable with. If the seller isn't willing to price the property appropriately based on its vacancy, move-on.
How many units? Small multi, I would run mainly off of comps. If it is a commercial multifamily, I would tend to look more at the cap rate. Having said that, you have to run the numbers either way, take into account your value ad if any, and assess the cash flow.
Assuming that this is a 5+ property, this is pretty simple if you want to do a discounted cash flow analysis. Do some research and figure out conservative rents in your area. Determine a time frame in which you believe you can reasonably fix and lease up the units. Bake this into the cash flows and go from there.
Good responses guys. Thanks!!!