DFW REI Club

 Dallas/Fort Worth Real Estate Investor Club

Determining Comps & ARV on Multis

  • 05 Aug 2017 2:26 PM
    Message # 5014146

    Are there any investors in 2-4 unit properties that can shed the light on how you come up with comps and ARV, as its completely different than SFRs. Any and all help is greatly appreciated!


  • 06 Aug 2017 8:05 AM
    Reply # 5014866 on 5014146

    Those fail into the realm of commercial properties. I belive most poeple evaluate them by using income and roi instead of comps.

  • 07 Aug 2017 7:49 AM
    Reply # 5016394 on 5014146
    Robin Carriger (Administrator)

    Commercial multi-family properties have 5 units or more.  As Neil mentioned, I just use my cash flow calculator to make sure I'm cash flowing sufficiently.  I've always been sorely disappointed with trying to comp duplexes and fourplexes any other way.  As long as you're conservative with your numbers, scale your required cash flow appropriately given the price you're paying, and remember that rents are well above average in today's market, you should be fine.  When the market goes the other direction, you don't want to go upside down and start negatively cash flowing.

    Thanks,

    Robin

  • 08 Aug 2017 5:16 PM
    Reply # 5019767 on 5016394
    Robin Carriger wrote:

    Commercial multi-family properties have 5 units or more.


    I did not realize that.  Thank you for the clarification.

    Neil

  • 08 Aug 2017 9:59 PM
    Reply # 5020048 on 5014146

    That why its a residention 1-4. 5+ is commercial :)

  • 16 Aug 2017 6:14 PM
    Reply # 5033156 on 5014146

      I am actively looking for a duplex or fourplex. Cap rates and a lot of other metrics people will try to use on them belong to commercial (5+ unit) properties which are valued very differently; as a business rather than a structure. As Robin mentioned, make sure your cashflow is sufficient. I also look at the ratio of cashflow to purchase price (while also taking into consideration the overall property value). I found a $550k duplex earlier today that I would really like to have, but not at that price. Rent would be ~$1,850 per side, giving ~$3,700 in gross rent. By the time all is said and done, I'd realize, what, about $400 per month in net cashflow for my $550k purchase? Even though that property is all new and pretty, other duplexes in that area are selling for a $200k less yet commanding close to the same rent, albeit a few years older, and would therefore give a lot more bang for the buck.

      That's also something you can use to establish a value for them. Most municipalities will zone particular areas for residential multifamily dwellings, so there are not too many lone du/tri/fourplexes out there. If the neighborhood or multifamily street does not often have a property come up for sale, that may be an indication of neighborhood stability, and depending on the greater area, value upswing potential. If you find one of those few lone multifamily properties with no others around it, you can use that to negotiate a lower purchase price. "Mr. Seller, there are no other properties around here justify your asking price. So I can only offer $xxx."

  • 16 Aug 2017 9:32 PM
    Reply # 5033348 on 5014146

    Chris, you bring up a valid challenge! Those 2-4 family properties are "tweeners", lying in the conventional mortgage category--so you DO need comps if you're going to have a mortgage, but often looked at with the lens of the 5+ family multiplexes. I'm a licensed real estate agent and have several clients looking for 2-4s and, as was mentioned, prices and rents and condition and neighborhoods are all over the place! 

    Bottom line is that you have to develop some measuring stick you can be comfortable with and start your evaluation there. Most of my clients are looking at rent to value (monthly gross rents divided by purchase price) and want to be in the 1% range as well as cap rate (net annual income divided by purchase price) with most wanting to be north of 8%. Neither of these measurements considers how one property will appreciate compared to another. In my book potential appreciation is huge! Especially in our current market.

    Best of success and feel free to contact me or others as you progress!


Contact Us  |  Advertise With Us

Copyright © 2008-2017, Nubys Group, LLC

Powered by Wild Apricot Membership Software