How to estimate the ARV in multifamily

Question

I am buying a 14 unit multifamily property that has a lot of deferred maintenance.  The rehab is extensive and I need to know when we refinance later that the value in the building will be high enough. How do I go about estimating the ARV of an apartment building?

Also, Where can I find data to help me make a determination?. What is a good online source for market data reports for multifamily  sales in a given market area?  Some of the information I am looking for  is as follows:

Sales price,

Price per unit

Price per Sqft

Sales cap rate.

Dan Handford · Answer

@Wilson Lee Your broker should be able to provide most of the market/sales comp information for you. The value in the building will be based on your projected NOI. So you need to determine, based on comp analysis, where you can push the rents to determine where your NOI will be upon refi. This will also allow you to know how much you could potentially spend on renovation costs.

Theo Hicks · Answer

You need to calculate the NOI once the property is stabilized. Perform a rental comparable analysis to determine what the new rents will be. I would work with your property management company to help you calculate the operating expenses, because they will likely be different than what the currently are if the property is very distressed.

Subtract the operating expenses from the gross potential rent to get the NOI, then divide by the cap rate.