Figuring out the ARV of a Quad

[Bennett Schwartz]

Hey All,

I'm working on a project in which i'm converting a single family home into a Quadplex and looking to Refinance out of it afterwards and was wondering how to figure out the ARV. I was told two different things, either you see if there are comps of other Quads in the area or you use the Cap Rate and the NOI.

Can someone please explain how to come up with an ARV?

Thanks!

[Mark Doty]

@Bennett Schwartz

I'm also in the process of of converting a property and have been interested in the same question. As far as I can tell there is a range that is dependent on your area, the comps, the CAP and the individual who performs the appraisal. In the end, Because you're working on a residential (2-4 unit, not a commercial 5+ unit) the appraiser will blend the sales comp approach and the income approach.

I’ve heard that they will take into consideration comps for other quads with similar size and bedroom counts, sq footage and condition to come to a price per unit. 

Then they will also look at the Gross Rent Multiplier and the gross rent. You'll want to find out from brokers what the GRM is for your market. The CAP rate may be considered but is less predictive of value in smaller rental properties. The advice I've heard is to do the construction, maximize rents and diplomatically try to influence the appraiser to use more of the income approach.

I’d love to hear other feedback from the board!