Need help on ARV for multifamily

[Matthew Lahickey]

Hello,

As I am researching multifamilies I am finding most sellers seem to understate their expenses in order to elevate their properties value. When determining an accurate ARV do lenders appraise based off the 50% rule or the actual expenses paid in the prior year, IE: tax returns?

Thanks.

[David Alvarado]

@Aaron Montague

Yes, ARV is typically not something used in the commercial space, but there can be a new value based on improvements made to the property and increasing the NOI.

Value for commercial property when done by an appraiser is based on three approaches: income, sales comps, and cost (to construct). Generally, most of the weight is placed on the income and sales comps approaches to determine the value. Cap rates in the local market of similar property and sales comps will drive the value. Improvements made, such as a roof, would be great, but as long as the roof is not leaking or failing in some manner, it should not be looked at as a negative to the value of a commercial asset.