Valuation questions

[Andrew Vargas]

Hello,

I am currently reading "The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss" by Ken McElroy. I am completely new to real estate investing (this is my first post actually) so I am soaking up all the educational content I can get. I have a few questions on the chapter I just read, chapter 7 "Is it Really a Diamond?". This chapter is related to valuating a property and what your asking price should be. So I had a few questions that hopefully someone can answer:

1. In the chapter Ken gives a real world example of his offer on a property that he derived from dividing the NOI by the Cap rate in his area, but most of the properties he talks about in his book are larger properties, most involving hundred unit apartment complexes. However, for beginner investors just starting out with smaller multifamilies, is this method relevant? Will local brokers know the current cap rate on say a duplex, triplex, or quad?

2. In this example, after throwing out the pro forma income and expenses given by the seller, Ken used a more realistic projection of the operations on this property, and came to a value of 82,000 less than the asking price. It seems to me that using this method will always result in a value well below the asking price. Are there any investors here that have had success obtaining a purchase price using this method? and also in your experience does presenting the real prior year operations seem to help in the negotiations of the purchase price?