Multi-family valuation question

5 Replies

When trying to determine the value of a multi-family property does that value come from the income the property producers regardless of how big or small the multi-family property is? for example, is the value of a 2-4 unit multi-family property based on how much income it producers or is it based on comps in the area? Also confirming that a 5+ unit rental value is based on Income it produces.

@Ty Martell On the residential appraisals for a 2-4 unit, they usually will do both sales comps on comparable properties, then they also run an income approach as well to come up with a valuation. 

In the commercial side of 5+, they actually do both as well, but they really take a deep dive in the income produced from the asset, as if they ever needed to foreclose, they want to know the asset would take care of itself. Also, the sales comps can come from all over the county of like kind, it doesn’t necessarily have to be right down the street

Originally posted by @Ty Martell :

When trying to determine the value of a multi-family property does that value come from the income the property producers regardless of how big or small the multi-family property is? for example, is the value of a 2-4 unit multi-family property based on how much income it producers or is it based on comps in the area? Also confirming that a 5+ unit rental value is based on Income it produces.

Exactly what Kim said. When I have refinanced my properties here in Columbus they'll take a look at comparable 2 or 3 units. However they will also take into account the rent amount. Coincidently my appraisals have always come back at 100x gross rent.....coincidence? maybe, but Ill always try to get rent as high as possible for the appraisal 

Hi Kim and Steven, thank you for the reply. So it seems like they use a dual approach. What if the income approach comes up with a smaller or larger number compared to the sales comps?  Also in wanting to buy a multi-family property which valuation would you recommend to use to put an offer in?

@Ty Martell even though a small MF would be based on the comps, it definitely doesn't hurt to do a good financial analysis and divide that NOI by the prevailing market cap rate.