NOI & ARV Commercial Multifamily (Question)

[Mike Dusenka]

Hey BP family,

I got a question I hope someone can answer. This all gears toward getting a predication on what my ARV will be on a commercial multifamily property. I'm running into a catch 22 where I can't determine my ARV because I don't know what my CAP rate will be and I can't assess my CAP rate because I don't know what my ARV will be.

What I've learned is ARV = NOI/CAP and CAP = NOI/VALUE

How do you get in the ballpark of what you're ARV or CAP rate will be after repair?

[Herndon Davis]

Everyone has similar issues. I'm going through it myself with with a multi-family property I'm seeking to buy in Houston. You can do one of 3 Options which range from FREE to costing of several hundred dollars:

1-Ask your realtor to do a comparison analysis in the immediate area up to 1-1.5 miles out of similar properties of what has sold in recent years. Or on what their MLS system may value the property as being. The system can give you estimated rent rates as well. This is usually a few clicks of a button, the local MLS system does all the work. If you have the realtor under contract there is no cost for this.

2-Go to Zillow and type in the addresses of similar properties nearby that may not be for sale.  Zillow gives you an estimate of market value and estimated rent the property might gain.  In addition you can look up nearby active rental listing to see what the rate is going for in that same area.   Also use other sites like Property Shark and RedFin for market value estimates.

3-Hire an independent appraiser to assess the value. He/she will pull comparables and give you both a current and After-Repair Value.  Note there is typically $500-$750+ cost or more depending on where you live for this service and you will likely need to pay for another appraisal by a separate company AGAIN if you use a lender for financing.

Either option gives you the Value and Rental Income which can be used to calculate an average CAP rate for the area after you renovate. You also get an average ARV value as well from the comparables.

Hope this helps!!