Do You Use Comps or Financial Formulas to Determine Price on 2-4-units?

[Brandon Sturgill]

Is there a best approach when valuating a small multifamily property (2-4 units)? Seems a lot easier to valuate based on NOI and Cap Rate through a basic present value formula than to do a comp analysis...is there a reason for doing one over the other...or an argument for doing both?

[Dan DeMott]

Hi @Brandon Sturgill ,

I suggest both. You need to run the financial analysis to understand what the cash-flow will look like based on your investment capitalization (debt & equity) so you will be calculating the NOI anyway.

Once I calculate a cap rate based value, I compare that to the comps. If there is a big difference between the comps and my value, it's time to double check your rent/expense assumptions, or your return (cap rate) expectations. 

As @Scott Morris mentioned, appraisers are going to review the comps for their report so you should know what those numbers will look like.