Analyzing Multifamily (5+ Unit) Properties

[Nicholas Bencivengo]

Hi Everyone,

I'm a bit of a new investor, but I've always been a numbers junkie and enjoy practice with analyzing deals. I think I have the gist of it down for Single-Family & Small Multi-Family, but I'm looking for some advice with analyzing 5+ unit properties. Ultimately, I'm trying to calculate an ARV for once a property is stabilized, and this is proving much more difficult considering a much smaller pool of comparable property sales (compared to single-fam & small multi-fam) and the fact that comps don't weigh as heavily into these property valuations. I understand that from a lending perspective, the property appraisal will likely rely on the income approach. Just wanted to see what others in the Hartford area were using to estimate a property's valuation. Specifically, I was hoping for some better insight on the following assumptions:

- Utilities - Assuming Water/Sewer paid by landlord

- Cap Rate (a quick google search led me to believe that 8% or so was fairly standard for Hartford)

- Repairs/Capex - Do you use a % of rent, % of purchase price, or a set amount per unit?

- Property Management - I understand that 8-12% is fairly standard for long term rentals, but I wasn't sure if lenders used this same assumption for valuing stabilized properties.

Any insight on these assumptions would be very helpful. If you have any advice to offer from a recent closing or refinance, that would be awesome!

Thanks in advance!

Nick

[Abel Curiel]

Quote from @Nicholas Bencivengo:

Hi Everyone,

I'm a bit of a new investor, but I've always been a numbers junkie and enjoy practice with analyzing deals. I think I have the gist of it down for Single-Family & Small Multi-Family, but I'm looking for some advice with analyzing 5+ unit properties. Ultimately, I'm trying to calculate an ARV for once a property is stabilized, and this is proving much more difficult considering a much smaller pool of comparable property sales (compared to single-fam & small multi-fam) and the fact that comps don't weigh as heavily into these property valuations. I understand that from a lending perspective, the property appraisal will likely rely on the income approach. Just wanted to see what others in the Hartford area were using to estimate a property's valuation. Specifically, I was hoping for some better insight on the following assumptions:

- Utilities - Assuming Water/Sewer paid by landlord

- Cap Rate (a quick google search led me to believe that 8% or so was fairly standard for Hartford)

- Repairs/Capex - Do you use a % of rent, % of purchase price, or a set amount per unit?

- Property Management - I understand that 8-12% is fairly standard for long term rentals, but I wasn't sure if lenders used this same assumption for valuing stabilized properties.

Any insight on these assumptions would be very helpful. If you have any advice to offer from a recent closing or refinance, that would be awesome!

Thanks in advance!

Nick

 Hey Nick,

Cap rate will be one of the most important #s to work from. Are there any 5+ unit properties that have sold in the last 6-12 months in the area? If not, I'd go back as far as 18-24 months although this is not ideal.

I'd recommend calculating cap rate yourself (using data from comps) rather than going off of google. Although google may not be far off (it is usually .5-1% off in my market), it usually looks at entire counties or cities which doesn't always reflect the subject property in question.

For utility estimates, use loopnet or crexi to see what currently listed/recently sold properties have listed for this expense.

Repairs/CapEx can be 10% of monthly rental income, this is the # we use on most of our calculators. BP calculators may be a bit more conservative by recommending ~8% for each repairs/maintenance and cap ex.

For property management, you're right on the money! We use 10%. 8% on the low end and 12% on the higher end if we're being conservative.