Bank Appraisal

[Greg M.]

Hello all,

I am curious how exactly banks will appraise a multi unit commercial property. Its a 6 unit building so I know they will value it based of vacancy rate and rental income correct? Is there an exact formula used ie. 3xAnnual Income-Current PITI?

I purchased at $105,000, i have stabilized it, 100% occupied for 3 months now, monthly income of $3700 - $1870 in costs = $1830 a month free cash flow (NOI) not counting for maintence % or CAP EX reserve%

Will the valuation be a multiple of NOI?

I would like to get the property re appraised for potential cash out refi, but I have no real way to even get a ball park figure without knowing the bank formula etc.  

Any help is appreciated! Thank you!

(cost breakdown)

$920 = PITI

$540= gas/electric/water

$370= Management

[Brian Adams]

@Greg M., appraisers use the cost, sales comps and the most frequent approach is income capitalization.

Income cap approach is based on the assumption that value is created by the expectation of benefits to be derived in the future. Specifically estimated is the amount an investor would be willing to pay to receive an income stream plus reversion value from a property over a period of time. 

Stated another way if the market capitalization rate in your area is a 7 cap and your NOI is $21,960 than the value is $313k (NOI/Cap Rate).

I just refi'd a 200+ unit deal and the appraisal does have an element of subjectivity by the appraiser of how they understand the market and market cap rate. Be prepared to really fight for your number and have market data available that supports your conclusions derived.