Do 4-Plexes Ignore Your NOI Bump? [Valuation by Comps vs. Income]

[Charles M.]

For 1-4 unit properties, I am hearing that appraisers lean almost entirely on comparable sales—basically treating a 4-plex like a single-family home. If that's true, any boost in NOI I create (higher rents, value-add renovations, better management, etc.) won't meaningfully increase the appraised value because the sale price still rides on neighborhood comps.

Am I missing something? I don't want to sink cash into a 4-plex, drive up NOI, and then find out the exit price is capped by the same comp set as a tired, under-rented building next door. How have other investors navigated this?

Where I am hearing this:

1. Here is a YouTube vid covering this topic >>

;list=PLiGkEdIjg0dc3X70H1JOyYfOS6i4qzAaj&index=4

2. Chat GPT

Prompt Question I asked: are residential a less effective way to build wealth that 5+ mulitfamily

ChatGPT said:

Yes, residential (2–4 unit) properties are generally a less effective way to build long-term wealth compared to 5+ unit multifamily—especially if your strategy is centered around forced appreciation, scalability, and building a portfolio with high equity growth potential.

Here’s why 5+ units are more powerful for wealth-building:

✅ 1. You Control the Value (Not the Market)

• 5+ Units: Value is based on NOI and cap rate. If you raise rents or reduce expenses, you increase the value directly.
• 2–4 Units: Value is based on comparable sales, not performance. Even a fully optimized 4-plex could appraise the same as a poorly run one down the street.

Wealth Impact:
You can manufacture equity in 5+ units. In 2–4 units, you’re at the mercy of comps.

✅ 2. Scalability and Institutional Appeal

• 5+ Units: Scale into larger buildings. Eventually appeal to syndicates, REITs, or institutional buyers who pay top dollar for stabilized assets.
• 2–4 Units: Smaller buyer pool, less scalability, mostly mom-and-pop investors.

Wealth Impact:
Your exit options are bigger and more lucrative with commercial multifamily.

✅ 3. Refinance Power (BRRRR-style)

• 5+ Units: Can refinance based on new NOI, unlocking huge equity gains tax-free.
• 2–4 Units: Refinance capped by appraisal comps even if cash flow improves.

Wealth Impact:
5+ units let you pull out equity faster and recycle capital for new deals.

✅ 4. Lending Leverage

• 5+ Units: Lenders lend on the asset's performance. As your team grows, you can get 8-figure portfolios underwritten based on NOI and DSCR.
• 2–4 Units: Still tied to your personal credit and income ratios unless using DSCR loans, which still fall under residential lending caps.

Wealth Impact:
You get access to more capital, faster with commercial lending structures.

✅ 5. Professional Operations and Cost Efficiencies

• 5+ Units: Easier to justify full-time management, maintenance, and CapEx systems.
• 2–4 Units: Often owner-managed, which limits your ability to scale operations.

Wealth Impact:
Commercial ops make it easier to go from real estate investor to business owner.

The Only Case for 2–4 Units:

• House hacking / FHA / Low-money-down start
• Live in one unit, rent the others
• Building credit and experience
• Lower risk, easier entry, but slower wealth-building.