Make Offer on Multifamily

[Michelle Joiner]

Whats the best way to determine the market value of a multifamily property?

[Account Closed]

Michelle:  You establish the value of a multifamily the same way you would establish it on any other property....you look at comps.  However, the comps that you're going to be looking at are cap rates, maybe cost per door.

Cap rate is the net operating income divided by the price.  Once you have that number you can compare to the subject property.

To get this information, I'd see if there were agents in your city that specialize in multifamily.  Loop Net is another possible source for information.  If you can't get it there, I'd try calling some appraisers.  And it may be that you can search your county recorder and/or county tax database.  You may be able to find sales price and number of units between the database.  I could here.

One of the problems is that you aren't probably going to know what the expenses are for other properties.  So unless a real estate agent specialist is giving you that number, your expenses are going to have to be estimates.  I generally use 40-50% depending on the age of the building.  

Once you have the cap rate for the area, you use the cap rate and the NOI for your subject property to solve for the value of the property.

Personally I like to look at the cost per door as well.  Look at the unit mix.  And finally look at the rents....compare them with other rents in the area.  If they're low that means they may be some upside in your property assuming all other things are equal.  If they're high, I'd get suspicious.  Wouldn't be the first time someone packed a building with short term tenants in order to sell a building.

They're more to it.  Just trying to give you an overall idea.