Can market Cap Rates be used to value multi's 4 units or less?

[Samson Kay]

So I've found that its difficult to evaluate multies in my area using the 2% rule, because everything is is priced much higher.

So my question is does anyone have experience in massachusetts with using market cap rates with NOI to value the property and do you feel that this is a "Semi" accurate method with determining value (especially when comps are not available)?

[Shaun Reilly]

Hey @Samson Kay

As Ann said it is tough to use any of these things with out the proper context.

Yeah 2% is not likely to happen much around here. At the event last night I was the only person in the room that found one in MA. I found ONE in 6 years so if you use that as your buying criteria around here don't expect to buy much.

NOI with a market CAP is going to be you best method. As a first pass you can use the 50% rule to see if the price is in the ballpark.

Example is a 3 family where you expect each unit to get $1000/month of rent. That is $3K a month so using the 50% rule your NOI would be $1,500. For the year that gives $18,000. If you use a 10% CAP then that is $180,000. If the place is listed at $190K you should get the real numbers and evaluate more. If it is on the market for $325K then it probably isn't worth the effort to figure out how much it will cost to plow the driveway or exactly what the bill for the common electric is.