Minimum number of units to determine value using cap rate

[Brian Fiorillo]

Good Morning BP,

My agent and general contractor are walking an eight unit apartment building for me today. Initial review of the numbers looks great. My question is, at what point are you using cap rate to determine value as opposed to finding comps? I hear it said often that cap rate may not be the best metric for small multifamily. I would still consider eight units relatively small so at what point is the cut off? I assumed over four units but am looking for a bit more feedback.

All the best,

Brian Fiorillo

[John Warren]

@Brian Fiorillo one huge issue that I never heard talked about here on BP is how difficult it can be to complete your refinance on the back end of a BRRR. Lets say you double the value of the buildings in 6 months based on your NOI. Your local bank on deals south of 1.5 million is going to ask you to hold that for another 1.5 years so they can establish track record, or they are going to lend based on loan to cost (LTVC) and not loan to value (LTV).

This happened to me on my first commercial BRRRR deal, and it was a rude awakening. I still have tons of trapped equity in that deal to this day, and it really can slow you down.