Calculating the value of a duplex

[Chiagozie Fawole]

I am considering purchasing a package of 3 duplexes located in what I would consider a transition point between high-end ($500K homes) and lower end (30K homes). There have been no recent sales in the very neighborhood these properties are located, and I'm a bit stuck on what value to place on the properties.

With an asking price of $200000, and monthly rents of ~$5200 the CAP rate comes to about 16% - Normally I'll take that any day, but the prices per square foot of the closest recent sales, a few blocks down, would bring the value of these properties to range between $120K-$150K. The owner argues that those recent sales are in a very different neighborhood, and so don't count.

While I should cash-flow easily at the current price, I'm concerned about what happens if I decide to refinance or sell these someday.  

For small multifamilies, what strategies do you use when calculating the value?

This is Rochester, NY by the way.

[Shawn Ackerman]

@Chiagozie Fawole your concerns are definitely valid.  The comps you reference, where they pulled by a Realtor?  Was the properties looked at good comps? Meaning was the style of property the same i.e. Hi ranch vs Hi ranch or Colonial vs. Colonial?  Also the time of sale (within 3 months) should be factored in to getting a "good comp".  Also condition, square footage, bathrooms/bedrooms are also factors.   As an investor you never want to purchase a property at market because you money will be tied into the property which reduces liquidity... Also in addition to the monthly rents, what are the expenses? are you factoring all of the other costs of operation i.E. vacancy, utility, Cap Ex, property management costs(I've heard that Rochester is notorious for poor performing property managers)Routine maintenance etc....  Is the owner open to seller financing?