How to value vacant multi-unit property

[Wave Taylor]

If a find an empty multi unit property, how should I value it and do I use comps to determine how much to pay for it?

[Jon Mauro]

Personally I would use an income approach regardless, especially if the units are vacant. I'd find good rent comps to determine what an achievable rental rate might be. I'd build a year 1 direct cap cash flow using the gross potential rent and apply a reasonable vacancy rate based on what the market dictates. I'd build out expenses based on comps, personal experience and financials provided by the seller. Don't forget to include some sort of expense for replacement reserves for CapEx which may be looming in the coming years. I'd also do some due diligence on the property taxes since the sale of the property could potentially trigger a re-assessment. Apply a reasonable market cap rate and that is your stabilized value. However, as you noted, the property is vacant. Therefore I would deduct the cost of leasing the property up inclusive of any improvements needed to get the units ready for market, as well as the lost income during the time it will take you to lease it up. So long as you make reasonable assumptions, that should get you a range of value you can get comfortable with. If the seller isn't willing to price the property appropriately based on its vacancy, move-on.