running comps + mixing SFR & small multifam. units

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running comps + mixing SFR & small multifam. units

Jeffrey Grieshop
New to Real Estate · Coldwater, OH · Member since 2018 · 105 posts · 61 votes

I was looking for an answer to my question but I did not have a lot of success. 

When running comps, can I equate or compare a small multifamily unit (2-4) to that of an SFR? If my criteria match for the comps, can I interchangeably compare these two? Or are there further considerations? I am mostly asking about SFR's that have been turned into a multiunit. For instance, there are many standard looking SFR's that have been converted to 2-4 units, right? So, let's say we have two identical properties but one has been divided into 3 units. Other than that, they are literally the same, even the location. I am now trying to determine how these would differ if I was going to buy them. Naturally, I would think the triplex would be the better buy, by far, at the same price, because we could rent it out to three people instead of one. So, I am trying to extract even more information and things I should think about in this scenario.

If that same triplex mentioned above sold 3 months ago for $100k and suddenly the "exact same undivided SFR property " is listed on the MLS, do I assume its value is $100k? Again, same property, same location, hypothetically speaking(except this one is a SFR not divided into 3 units).

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  • Bill Plymouth
    Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
    7y

    Multi family properties tend to appreciate slower than sf properties.  

    In regards to comps, I would not use a MF as a purchase comp for a SF or vise Versa.  

    If you’re looking to buy a a duplex, look at other duplexes.  At the small multi family level (2-4 units), comps are a more reliable measure of value.  

    You mentioned Single families that were converted into multi families.  Having multiple tenants is a plus, but take this into consideration:

    If you convert a 1200 sqft Sf with 3 beds and 1 bath into 3 400 sqft 1 bed room units it could potentially take 3 tenants to get the same amount of rent that it would take for a the same Sf rental.  I don’t know what your market is like but that is something to take into consideration if 1 bed 1 bath units don’t command a high price in your area.  In my market, you can expect at least 650/month for a 1 bed 1 bath unit.  

    If you are renting the property out you can kind of use sf rentals to predict what your rent couldn’t potentially be, but here’s the catch.  Sf properties generally attract long term/higher quality tenants than mf properties.  If you have a 3 bed 1 bath sf property that is renting for 1500 and a 3 bed 1 bath level of a duplex, they most likely will not rent for the same price.  The duplex would most likely rent for a few hundred dollars less.  There is a level of privacy with a SF home that people will pay extra for that you can’t be really get with a duplex or small Mf.  

    In regards to your final paragraph, you cannot assume their values will be the same.  Because they are 2 different properties.  You can assume their value will Be the same if you also converted that SF into a triplex.  Even then, depending on the zoning of your property, the price could differ. 

    I hope I answered your questions somewhere along the way on here

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  • Jeffrey Grieshop
    OP
    New to Real Estate · Coldwater, OH · Member since 2018 · 105 posts · 61 votes
    7y

    @Bill Plymouth It definitely helped me and it is the direction I was thinking. It is really comparing apples to oranges in a sense. The quality of and longevity of tenants that come with SFR is something that has been on my radar lately. I mean, in the end, I want profit and max cash flow, so I am staying open to both SFR and small multifamily units and navigating accordingly.

    I have been through 4, small MF properties now, all of which were lower income, old units, so some filth and low standards of living were expected. But, I've been shocked, the amount of filth I see among the tenants and their standard of living is hardly comprehensible. The spread in the standard of living among humans is fascinating really. Mice, holes, filth, dishes, cat stench, straight up ugliness inside, laziness, it's incredible. 

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