Calculate ARV for small multi family properties

[Julian Dover]

Hello BP community just a quick question reading reading David green BRRRR book and came across a part in the book where he stated that using comps in the area to determine the ARV for multifamily properties was not a correct way to do it because multi-families are based on the income brought in so instead investor look at the cap rate. But I thought the cap rate was used only on large commercial properties only to determine the performance,

so my question is can you apply the ARV strategy for small distressed 2-4 unit multi families as you would for SFH's?

[Don Petrasek]

@Julian Dover you have to look at both.  Comparable sales is usually a really good indicator of value for a 2-4 family property.  However if your property has features that drive the rents up or down in comparison to the typical market rent, it will affect the value.  The easiest way to determine how is by looking at the impact on the overall return. 

So if I list a property for say $25,000 above the highest comparable sale, my justification might be that the cap rate is at or above the cap rate for the highest comps due to an extra bedroom, premium finishes, lots of storage space, etc. which drives up the rent.  On the other hand, if all the comps have 2 bedroom units and one of mine is a one bedroom I could wind up at or below the lowest comps using the same method.