So I have been looking into some deals in my local area. I found one, a 3 unit, and have a question about evaluating the deal.
I have evaluated many opportunities, but this one is odd. So like i mentioned, it is a 3 unit but it is zoned as a commercial property. So, do i need to evaluate this as a residential rental or as a commercial property with its associated cap rate?
Howdy @Eric Schrader
It is possible it may have been used as a commercial property prior to a residential unit. Check with the local county to verify which is authorized, Commercial or Multi Family. It might have been converted without rezoning.
In answer to your question: the property will be valued based as a residential, which means that it will be based on comps in the area. Anything under 5 units is considered residential and will have comps to go along with it rather than cap rates.
That said, I evaluate each of my own rental properties as a "commercial" since I am after cash flow.