CAP Rate input question

[Alex Martin]

I am looking at shifting from SFR into multi fam and know the way they are valued is obviously different. When valuing the multi fam I have an easy time arriving at the cap rate with the provided numbers. A few properties I've been looking at lately already have the cap rate provided, which I can use with the units and purchase price to get a pretty good idea or what each unit is bringing in and the expenses. My questions is, what is the normal protocol when looking for say a 10% cap rate and I find an apartment that meets that, but that cap rate is assuming the current owner is managing the property or even doing maintenance? Should I recalculate the cap rate with a realistic management fee for that type of property and my area and present that to the seller as justification of why their asking is too high based on an incorrect cap rate?

[David Dachtera]

@Alex Martin,

Remember that MFR is up to four units in a building. Those are still valued by comparable sales because they're considered residential. You can still use multi-family analysis to see if its a good deal. However, valuation is still by comp.'s.

Commercial Multi-family is 5+ units in a building or a group of properties totalling 5+ units packaged as a commercial deal with a lender.

Cap(italization) Rate tends to be local to an area. It's a factor to compare to see if the numbers on a deal make sense in that area: does it match the surrounding similar properties? Cap rate does NOT determine sales price.

Hope that helps ...