How do you Appraise Something With No Comparables?

Question

I have a 4 unit that I'm considering letting go to 1031 exchange for something bigger. The problem is, the last person that bought a building similar to mine in this town, was me.... There's nothing like it that's sold or that's on the market in the area. How the heck do I come up with a price?

I bought it for 90k. I put 20k into it. It now grosses 2200 a month and I net on average 900-1100 a month. The neighborhood is a C or D.

I estimate that it's worth about 150k but I have no way of proving that with solid data. Is there any way to figure this out without first ordering an $800 appraisal?

Oleg Shalumov · Answer

@Anthony R. was not aware that 4-plex are commercial in that town. I would look for other properties (more than 4) and figure out per unit price, and adjust accordingly

Anthony R. · Answer

@Chase McArthur See I knew I wasn't crazy lol... Thank you for the sanity check

Chase McArthur · Answer

@Anthony R.

I 100% agree with you. Getting out of a property is easy, it's getting into a new one that's scary, and I totally understand why.  This is why I stress the unbelievable importance of a great broker, and not for the reasons most think.

There is often times a grave misconception about what I do. If you ask most investors they would say that I'm a commercial real estate agent. "I can sell my own property and keep your ridiculous commission for myself" most of them would say, at least the ones who dont really understand how I do what I do. And honestly, to those I say, go ahead, knock yourself out, I'll talk to you in 6 months.

Allow me to adjust perspective, here comes some truth!

Whenever I am talking with prospective clients I have their preconceived notions working against me. So to overcome this I simply re-frame who I am by explaining to them how I approach my profession.

I am a CRE investment broker. There is only one difference between me and a hedge fund manager and that is our product. My job is to increase your wealth and make you money but instead of bonds and equities I trade in real estate. My job isn't simply to sell your property and wish you a happy life, that's what real estate agents are for. Comparing what I do to what a real estate agent does is like comparing a bank teller to an investment banker. I'm calculated, I'm strategic. I don't just bring you a buyer, I bring you a qualified investor with a fat checkbook that won't waste our time. I don't just sell you a property, I strategically provide you another investment opportunity that will make you wealthier than the last one.  If you just want to pretend to be a "real estate investor" then go talk with your local Re-Max agent, I'm sure he's got some killer deals on some little fix and flips that you and your brother Andrew could bond over. But if you want to make real money and grow real wealth then come talk at me.

Mic drop...

But seriously, I do what I do with passion because I love it and that's what makes me an expert in what I do.

Anthony R. · Answer

@Chase McArthur  I give you,

The Ballad of The Real Estate Investor:

Yes, I agree that trading up is an excellent way to grow your wealth. I think the hangup I have is anxiety about the unknown.

Though many people have written books on buying real estate, there's really no book that can tell your future. You can very easily make a bad deal.

Just one overlooked detail. One bad building inspection. One missed nuance that turns it all upside down. It's all it takes.

I'm able to quit my job today because of the hard work and sweat, and massive risk, I put into my rentals. I keep working though because I want to get my wife to that point too.

Trading up could put us beyond where we need to be. One bad move though could set us back years. It's enough to make my hair gray

So, yes, I agree with you, that trading up is the best way to go.

It's just so nerve racking when you're going it alone. It's just me out there making these moves, doing this research and pulling the trigger on deals. I take what mentorship I can get on here and from people I brush across in the field. It's never enough though really. Also, it's always in the back of my mind that most people I interact with have an agenda.

The anxiety of ever looming failure persists.

That's the challenge of the real estate investor.

Chase McArthur · Answer

@Anthony R.

You always want to keep growing. If your money is sitting still it stagnates. Thats the hardest concept to convey to my prospects. They get a property, stabilize it, then want to hold on to it for 3 decades. As an investor you should want to GROW your wealth, and you can't do that by standing still. IMO, once you reach market rates hold it for 3-5 more years then sell up. Ride the cycle.

Caleb Heimsoth · Answer

@Anthony R.  I went through this recently with a duplex I bought.  I called a couple local appraisers and asked them.  They basically said, it’ll be valued partially by comps and also partially using the income approach.  It’ll also matter heavily on condition as in this area a rehabbed property could go for 2-3 times as much as non rehabbed.  They’ll look at all of that and then give you a value.  They said it’s difficult to do, that’s why sometimes agents aren’t good at it, if there’s no easy comps.

Charley C. · Answer

there is always comps just not in your town. Find a similar town(s) with similar 4 plexes in the C and D category. Take note of those comps and very much the cap rate(s) when finding values

Ed Matson · Answer

Without comps I would use the income method, like you would on a larger building.  After all, that's what investors care about. NOI is about $12K.  Neighborhood is C or D. My guess is that would mean an 8 Cap would be relatively reasonable.  Based on that, the building is worth around $150K.  That's what you were thinking.  The other thing you could do is compare it to SFH's of a similar class in the same area based on NOI.  What would it cost to buy 4 SFH's that would net a total of $12k/year?  Not exactly apples to apples, but it has meaning to an investor, especially since you are the only 4plex in town.

Chase McArthur · Answer

@Anthony R.

Caps in that area are a shy over 8. Youre right, you dont have any decent comps haha. There is one property at 1900 E 28st that is going for 250k at a 15 cap, but I'm not sure how many units it is. Theres a portfolio deal of 11 units going for 40k a unit. So going off that logic you'd be looking at 160 for yours. But typically portfolios are discounted so its probably a safe assumption, depending on value add potential, that you could safely ask 150-160 for yours.

Anthony R. · Answer

@Dennis M. my annual taxes for that building are 2450. Yeah I absolutely hate selling this building, or any of my buildings for that matter.

They're all awesome deals. However, I want to continue to grow, I'm not walkin around with C-notes falling out of my pockets and I don't trust anyone enough to invest with them. So the only options I'm left with are save the money up or sell one of my babies.

How do you Appraise Something With No Comparables?

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