No comps: helps or hurts?

[James Rodgers]

Hi everyone, 

I am specifically looking for MFRs here in Birmingham, AL for my first investment property. I plan on living in one of the units. A quad would be ideal. 

An issue I keep coming across is the fact that most MFRs I come across have no recent comps which would help me get an ARV. A lack of recent comps would also influence the appraisal. This is of great interest to me as I hope to use the BRRRR approach, and I know the refinance is critical here, making the appraisal critical.

For example, I recently went to view a triplex with my contractor to come up with a repair budget and an offer price. I was excited about the property, the location and the cash flow I was estimating. However, the RE agent I've been working with was very concerned as the only multifamily comp she came up with was like 10 units or more, and sold, total, for much less than what the seller of this triplex was asking. She also kind-of compared it per sqft to the SFRs in the area. Her advice was to just walk away, since the repairs needed themselves would be more than she thought it could even appraise for. 

So my question is this: how critical are the comps in an area to a multifamily appraising well (by well, I mean enough to refinance and pay for rehab)? Say I purchase a large, 1920s house, rehab and also convert it to a multifamily (4-unit, hopefully), while >95% of everything else in the neighborhood is either single family or large apartment complexes; what should I expect in terms of an appraisal and refinance? I feel like I am struggling to ask a clear question, but hopefully it is getting across. 

I have heard it mentioned in a positive light that there were "no similar comps in the area." I have also come across the concept of appraisal based on income-generation, not just SFR market value, but that's about all I know, that it is a thing.

Any knowledge is appreciated! Thanks everyone!

James

[Glenn D.]

@James Rodgers,

I was an appraiser in CA and owned my own appraisal firm there so I speak from some experience.  Here are a couple points.

1. Many agents and apparently your agent too, are no where near qualified to perform an appraisal or give you a correct market value. Her utilizing SFR square footage is a prime example.
2. It is true that you have to compare apples to apples and when you cant find a Gala apple, you find a Fuji and adjust. BUT you can not compare that Gala to an Orange. The are both fruits, but value is way different as in comparing a SFR to a Multi-family.
3. There are 3 primary means in coming up with a properties value.  Sales/Market comparable, Cost and Income. This is very important because a wrong value can mess you over hugely. When there are very few market comparables, an appraiser will probably go with the income approach.  

So best bet is to contact either an appraiser who is familiar with the area and multi-family units and see if they will give you an idea.  Another avenue is to contact a commercial lender and they may have a Cap rate idea for your area.  

Hopefully your hard work will come across plentiful opportunities.