Just out of curiosity I’m interested in learning how others values small muti-family unit buildings (3 to 4 units). I know bank appraisals use the sales comparison approach. Depending on the market I like to do a hybrid approach of the sales comparison and gross rent mutiple.
These buildings are traditionally valued by banks appraisals using the sales comparison method. However I find that sole relying on this can often give misleading information because these buildings don't sell that frequently (at least in my market). This makes it hard to get enough recent comparables.
Use a hybrid myself. It can be tough because some of these are not true 3 or 4 unit properties. They were cobbed up in the past by a previous owner so I like to take the unit size and layout into consideration since I believe that helps foster long term tenancy. I have seen some really bad floor plans in buildings this size
too many variables.
property condition, rent, expenses, tenants quality.
You want to use the closest sales comps as you can. I'd stick to the using the sales comp approach when valuating 1-4 units because that's how everyone else will value your property including lenders.
For that size when I am buying I value it on cashflow since its 30 year fixed financing so no need for cap rates. For resale I look at sales
@Sean McKee yes, banks use sales comparison to determine value, however, the rent comparison is useful to figure out the cash flow
Thanks Everyone for the responses. I kind of figured it would lean towards the Sales Comparison as this is the most common approach for 2-4 unit buildings.
@Sean McKee - Banks use comps, investors look at cash flow. GRM is useless, as it tells you nothing about expenses, and hence, cash flow.
Cash flow is King or Prime consideration for small with 30 year fixed.
Comp set sales is what bank insists.
Compare unit mix, unit size, market position, rent comparision, leases, location advantages, building curb appeal and other structural strengths with recent upgrades already done, building inspection and appraiser reports to help you justify higher value, etc.
small commercial im assuming? gross rents x .5 /cap = value