Analyzing Multi-Family Properties: Sales-Comparison vs. Cash Flow

When it comes to evaluating a small multi-family property, there are two main models that are commonly used – the price comparison model and the cash flow model. Both of these approaches can be used to determine the fair market value of a multi-family property and can be helpful in making a purchase decision.

The price comparison model is based on a comparison of the prices of similar properties, often in the same geographical area. This approach looks at the recent sales prices of comparable properties, how long they have been on the market, and other variables such as condition and location. This model provides an estimate of the current market value of the property, helping you determine whether the asking price is fair.

The cash flow model, on the other hand, looks at the estimated annual income and expenses of a property. This model considers the rental income, operating expenses, vacancy rates, and other costs associated with owning and managing the property. By looking at the potential returns the property could generate, you can determine the fair market value of the property based on its potential cash flow.

When evaluating a small multi-family property, it is important to consider both the price comparison model and the cash flow model. By looking at both models, you can get an accurate estimate of the fair market value of the property and make an informed decision about whether or not it is a worthwhile investment.