Let's Talk About Multi-family Properties

[Deleted member 152047]

Regarding 2-4 properties, I'll assume appreciation factors are the same as those that affect SFRs and condos.....

And not income streams....
But I'm not sure...

Assuming this without evidence is flat out wrong. People purchasing SFRs are looking at properties in a completely different manner than investors looking at 2-4's. Even if they are going to occupy 1 of the 4 units, they have to look at the income. Would most buyers really want to live in the same building as their three tenants? No, they are looking at the revenue potential to offset their occupancy costs and/or make some money on top of that.

 

[ucbruin]

Assuming this without evidence is flat out wrong. People purchasing SFRs are looking at properties in a completely different manner than investors looking at 2-4's. Even if they are going to occupy 1 of the 4 units, they have to look at the income. Would most buyers really want to live in the same building as their three tenants? No, they are looking at the revenue potential to offset their occupancy costs and/or make some money on top of that.

Okay...


I do have a question....
In your opinion should appraisers give consideration to the income approch rather than to the sales approach???

I'm adding this question....
Are you saying 2-4 unit appraisals should be completed differently for an investor and a non-investor buyer???

 

[Deleted member 152047]

Ahhh, we've arrived at the real question of who is the most probable buyer? If the market dictates that it is an owner-user then the sca might be given more weight. If the most likely buyer is an investor, then I would place more reliance on the income. There is not a difinitive answer to your question. Every market is different and it is your job to find out who the buyers are, what they value the most, and ultimately what data produces the most reliable indication of value (i.e. what best mirrors the market).

 

[Carnivore]

It really depends on the comps and what is happening in the market...I can find searching for comps so difficult that I might have to compare a duplex and a triplex ...I'd rather compare the same to same but that's not always possible. In my area , most small income property is for investment , not to live in , and as prices rise the income and expense statement can show it barely breaking even. Rents keep rising here though which i'm at a loss to understand how working people who live in the small income properties manage to pay it, since I don't see any commensurate rise in wages .

Its called being homeless or several families living together. Millennial live in their parents basements! Their insulated to life's realities. I think they are in for a surprise!
I could go on, but I don't want to drift away from the OP's Point!

 

[Gobears81]

If the market dictates that it is an owner-user then the sca might be given more weight. If the most likely buyer is an investor, then I would place more reliance on the income. There is not a difinitive answer to your question. Every market is different and it is your job to find out who the buyers are, what they value the most, and ultimately what data produces the most reliable indication of value (i.e. what best mirrors the market).

You are completely correct, but there is also a real-world element to it. If you have great sales for this type of property but for whatever reason, there is a greater degree of variance in the income approach (such as a wider range of multipliers, etc) the sales comparison approach could very well be the best method. Slightly off topic, but I just completed a Class B medical office appraisal and most of the recent, local sales were Class A, while I had to either use dated sales or sales in further proximity for Class B. The most likely purchaser was an owner occupant, but the sale prices were all over the place both before and after adjusting. OTOH, I had great Class B MOB rentals, good capitalization rate data, etc., so I ended up giving essentially equal weight to both approaches, even if a market analysis would suggest the SCA to be the best method.

 

[Carnivore]

Ahhh, we've arrived at the real question of who is the most probable buyer? If the market dictates that it is an owner-user then the sca might be given more weight. If the most likely buyer is an investor, then I would place more reliance on the income. There is not a difinitive answer to your question. Every market is different and it is your job to find out who the buyers are, what they value the most, and ultimately what data produces the most reliable indication of value (i.e. what best mirrors the market).

Interesting comment and I agree, but I there is one more buyer; Owner Occupant with a short term and or long term goal of Wealth Accumulation. I seriously considered using my VA Loan to purchase a four-plex with the intent to live in one unit and rent the other three. The numbers worked because my out of pocket money was essentially Zero Dollars. I was single at the time I would have taken that path if I had better advice from Realtor's.

 

[Mark K]

From my experience (I've built, owned, leased, bought, sold, and appraised 2-4 unit buildings) there are few things in a sales comparison approach that aren't reflected in the Income Approach. I always put most of the weight on the IA with the SCA providing support, if necessary.

Newer duplex vs. old duplex, everything else similar? Rents are generally higher in new; tenants will pay more for newer.

Size? Tenants pay more for larger.

BR count? Tenants pay more for extra bedrooms even if the size is identical.

Baths? Same thing.

Garages? Same thing.

Condition? Same thing.

Its all reflected in the income.

 

[ucbruin]

2-4 unit....

Investor v non-investor....
Comp selection different???

 

[Carnivore]

2-4 unit....

Investor v non-investor....
Comp selection different???

----------------------------------------------------

Would this make more sense?

Owner Occupied Investor -seller/buyer
Investor current owner - seller/buyer

Comp Selection the same for either

 

[ucbruin]

Great.....

So at the end of the day....
Income approch given most weight regardless of seller/buyer???

Have I gotten that right???