BRRRR a quadplex. Is it possible???

[Stephen Bruce]

For context, I am in the due diligence process of a quadplex in a C-class area. 

2 bed/ 1 bath

800 sq ft

PP: $275k

Cap Rate: 7.5%

This is my first attempt at BRRRRing a multifamily. Does anyone in the forum have past success using the BRRRR on multifamily? Where did you go wrong? What did you do right? What would you do differently? Any books you used to help you along your way?

Look forward to discussing this topic with everyone. 

[Brad S.]

Quote from @Stephen Bruce:

Freddie Mac: "The appraiser may also need to consider whether the income approach, cost analysis, market surveys or other methods are appropriate for supporting adjustments. The appraiser must provide a sufficient explanation of the basis and rationale for all adjustments (or, if necessary, lack of adjustments) within the appraisal report or addenda." 

"The income approach is required for appraisals of 2- to 4-unit properties. The Seller may request the appraiser to develop and report the income approach when not required for the transaction. The appraiser must develop and report the result of any approach to value that is applicable and necessary for an appraisal, even if the Seller did not request it.

Appraisals that rely solely on the income approach for the opinion of market value are unacceptable."

Fannie Mae: "The income approach to value is required in the valuation of two-unit to four-unit properties . . . However, USPAP requires the appraiser to develop and report the result of any approach to value that is necessary for credible assignment results. If the appraiser believes the income approach is necessary for credible assignment results, then the income approach must be included. Appraisals that rely solely on the income approach as an indicator of market value are not acceptable."

To me, its seems like there is room for using an income based appraisal. What are your thoughts?

Also, Id love to hear what you have to say on the absence of reasonable recent comps!

Yes, but what is required may differ from what I, as an appraiser, find meaningful, credible, or reliable with regard to value. I can tell you from my 27 years of appraisal experience, in my market, the income approach was significantly useful only a handful of times, for a 2-4 unit property,  and mainly as support for the sales-comp approach.  But, that is relative to my markets and specific assignments. But, with lack of reasonable quad comps, the income approach may become more reliable and/or reasonable for the appraiser. 

One problem is the lack of reasonable rental data for similar units/properties. There are typically a lot more variations in unit characteristics with 2-4 units properties than with larger apartment houses, etc. Then this is reflected in the wide range of grm's. An example is a previous duplex assignment I had which has grm's ranging from $199-$283. assuming market rents of $1,000/mth for the Subject, that equates to a value range potential of $199k to $283k or 40%+

It's a lot more challenging accounting for grm differences than other property differences.

But, once again, this challenge of lack of comps may actually benefit you to the positive. Best way to do that is to explain and "prove" to the appraiser why your property is worth a lot by providing as much facts/data as possible. Give them the ammunition to support their higher conclusion. Your "opinion" doesn't help me defend MY professional appraiser opinion about the value of your property, but if you provide me data I'm not aware of, or haven't thought about, etc, maybe I can justify a different conclusion.

Here's a thread where I posted a more detailed answer to what to do if comps are lacking. I think my post is 3rd down.

https://www.biggerpockets.com/forums/48/topics/1168539-quest...