How to determine ARV on a multi-family property?

[Scott Champion]

I may be getting the opportunity to purchase a 6 unit apartment complex, all being 2 bedroom 1 bath apartments. I think I have good idea of how to determine this number in single family houses but struggling with the commercial ARV. These apartments are in a great location, inside a small college town, but they need a tremendous amount of work. They are all unoccupied and have been for several years. I'm estimating a rehab cost of approximately $300,000.00 or a little more. I need help figuring out what I can pay to still come out with cashflow at the end of the day. There is a 39 unit apartment complex (all 2 bedroom 1 bath) in the same small town, renting for $750 to $850 each based on the individual apartment updates. This 39 unit complex is completely full with a waiting list. The location is near Shelby North Carolina. I hope this is enough information for someone to help me out!

 Thanks in advance,

Scott           

[Evan Polaski]

@Scott Champion, typical approach will be take your stabilized NOI divided by market cap rate. Now 6 units is a bit different than a 39 unit, and while "commercial" from lending standpoint, will likely be sold to a local person that wants to get into real estate like a 4 family. So I would look at what 3 and 4 family properties are selling for on a price per door basis. This may also align with the 39 unit price per door. Residential will also use a gross rent multiplier, which I would say could also be weighed into the valuation for this property.

Lastly, I would talk to any residential (but hopefully focusing on investment properties) realtor, as well as a commercial broker, if any work in this town, to get in idea of demand and ARV of this type of asset.