How to evaluate comps for 2-4 unit rental properties

[Juhi Banerjee]

I would like to know how do we appraise a duplex, triplex or quadplex? Usually for SFH we would find the similar homes in immediate neighborhood say 5 miles and adjust according to bedroom count, age of property, repairs needed etc. But we wont have similar comps for small multifamily. If I want to evaluate quadplex consisting of 8 bedroom, 4 bath should I find a similar comp for 2 bed 1 bath in the neighborhood and multiply that by 4? It feels exaggerated to evaluate the property like that. We also can't use a metric like cap rate and NOI as it is more suitable for more than 4 units.What is the best metric to evaluate such properties?

[Evan Polaski]

@Juhi Banerjee, appraisers for 2-4 units will use the same valuation methods as a single family home: Sales comparison, Income and Cost approach, with a reconciliation section to account for the variances.  The Income approach will utilize a gross rent multiplier, versus an income capitalization approach (cap rate) approach used in commercial.

But back to Dave's question: are there really no other duplex to fourplex in the area?  Typical zoning that would allow a duplex would also allow others in the area too.  My experience, personally, is limited, but where I owned a duplex, there are others in the market to use as comps. The neighborhood is primarily single family homes, so duplex transactions were not as plentiful, but they existed.  This is a fairly dense, inner ring suburb, so they maintained the typical 1/2 mile radius, but utilized 12 months of sales data versus the typical 6 months used on single family.  Then, if you really don't have any other duplexes, are you sure the one you are looking at is legal?

For your purposes, no you cannot use a 2/1 single family and multiple by 2 for a duplex.