Multi Family Property

[Tim Cooper]

I am leaning towards purchasing a 12 unit 1b/1b unit which would be my first multi-family property. I have a significant single family portfolio so I'm not new to real estate investing.

My question is: How do you value a multi-family property and/or evaluate the asking price?

More specifically the property I am looking to acquire has a very poor P&L and/or tax returns as the owner passed away and his wife neglected the property for several years which means occupancy was down. They hired a property manager who has the facility 100% occupied to date in 2020. The valuation is based off of the NOI and CAP rate which is fairly standard. The real problem for me is it is only a (1) year history....

any insight / thoughts are appreciated.

[Andrew Adam]

Hi Tim,   That is awesome that you are looking at multifamily. I actually see this all that time with self managed properties in the 5-18 unit ranges where there is little history. Often times you might be able to get more history but have to build a P & L out a bit since they may have included costs from other buildings, or done work themselves that you would be contracting out. 

   What I often have to do or what my clients do is look at what you do have on the property and compare it to others in your market. IE: What the vacancy rate is in your market, With the age of that building what can be a reasonable expected maintenance cost? 5%, 8%, 10%+. Maybe you look over P&L s on other similar properties in that area and get a good idea of what certain things like utilities cost for those unit sizes. I sometimes have luck calling utility companies and getting some info from them.

Best of Luck!