Upping Cash Flow vs Rehab for Multifamily Appraisals

[Byron Broughten]

Hello!

I'm trying to compare the potential for appraised after-repair-value among several multifamily properties, and I'm stuck. I know that making repairs and adding neighborhood-friendly features is of principle importance for raising the value of single-family residences, while increasing cash flow is the bottom line for raising value on properties with 5+ units. But how does that balance out in 2's 3's and 4's?

Consider two scenarios:

1. I buy a duplex for $200,000. It has two 3BR units renting for $1300 each. I do nothing to enhance the property, but I replace the tenants with section 8 tenants and thus pull in $1500 per unit, increasing the cash flow by $400 per month. Would the appraised value of the property increase even though the property wasn't improved?

2. I buy a quadplex for 350,000. It has four 1br units renting for $900 each. I improve the units significantly, but I can't raise the rent—let's say it came with section 8 rent, and the market in that area won't bear any higher. Would the property's appraised value increase significantly even though the rent didn't go up?