How do you value a 4 plex?????

[James L.]

So I found a 4 plex that's for sale of market it is a bit of a puzzle. I'm trying to figure out what it's worth. It's in a stable area, tried to get comps pulled but no other 4 plex's in the area have sold on market since 2006. I checked the tax records and it has sold 3 times in 4 years. It has a lot of deferred maintenance, they want  220k for it. But I'm not even sure if that's a good price. Any help or tips would be appreciated 

[Albert Bui]

@James L.  Hi James,

It depends on value from which lenses that you're looking at the property from. I would be most concerned with value from the appraisers point of view personally because that determines the structure of your financing.

With smaller 1-4 unit residential you'll most likely be weighing your value based on comparable approach but if its not present an appraiser would look for GRM or gross rent multipliers.

A GRM of 100 means the property is selling for 100 times the monthly gross rental income or 1% rule as seen prominently on BP (gross monthly rents are 1% of the sales price).

An appraiser would go out to find duplexes, fourplexes, and triplexes, and sometimes non owner SFR's that are renting currently in the market and that have sold recently. The appraiser would adjust according for the monthly rental amount based on features, amenties, condition, location, and proximity to determine market rent and apply the most resonable GRM to your gross monthly rent.

So for instance if your market gross rents are determined to be $3000 (750 per unit X 4) and the GRM was 75X then your 3000 would be multiplied by 75 to end up with a market value of $$225,000.

Cap rates are great but no residential appraiser uses CAP rate, you can however use it for your "own," analysis to determine your ROI criteria but it has no bearing till you enter 5+ multi family, commercial, retail, and business financing.