Evaluating small multi-family

5 Replies

I'm now on my 9th property and up until this point they're all single family homes. I know people speak against it, but I use Zillow to search recently sold comps to help me determine an ARV on these homes and have been for the most part spot on, because I am conservative.

I want to move into small multi-family, 2-8 unite. I can't find comps as easily and I'm not sure if that's the way to go anyways. My question is what is your process for determining ARV on multi-family Properties?

@Walter Ciucevich If you are holding these as rental properties to produce income, I am not sure why ARV is important to you. If your plan is to flip, ARV has more to do with the net operating income. Yes, anything under 5 units usually uses comps, however there are hardly any recent sales to run comps. I use NOI and cap rate even for a SFR. The question you need to be asking is, how much will it rent for and how much cash flow do I keep after expenses and debt service. If that number is good for you, it is a good deal. I would keep doing what you have been doing, since you have proven that it works until you can do something on a larger scale.

@Walter Ciucevich

There are lot of sophisticated ways to evaluate multi family properties. Many of these, require information that is just not available, like the actual expenses of the property.

Some guidelines to help are how much properties are selling per unit and what is the unit price vs rent. Partly this means knowing your market. What is the condition of these units vs competing units. Will they need work to bring them up to competitive standards? How do this building's rents compare to the market?

@Ned Carey appraisers typically use three ways to determine value. Knowing your market is the best tool an investor has. If you know the current rent, you can figure the rest out with some simple math. If you don't know your market, then not only is it more complicated, it is increasingly risky.

I'm pretty well versed at calculating rent, but i didn't think appraisers just used a NOI and cap rate on smaller properties. Do they use comps, noi and cap rate and another method and just average them?

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