Let's Talk About Multi-family Properties

[Deleted member 152047]

The short answer is yes, in most cases. To get to the "as is" MV of a mismanaged property you would need to deduct the lease-up and turnover costs, as well as entrepreneurial incentive, which would vary based upon the time, effort, and capital outlay required to bring the property to stabilization.

 

[Tim The Enchanter]

It is the market in market rent that you are missing here, UC. You have to develop an opinion of market rent.

Where does the subject fit in its market. For sales. For income production.

I think that's why there is a place on the form for actual rents and another for opinion of market rent.

 

[TRESinc]

No AMC will take my fee of $700 but are happy to give these out all day long at $400 to people who have no clue on how to complete them.

$400 for a 1025? really? damn.

 

[J Grant]

I'm sure we've all appraised 2-4 units where the owner doesn't increase the rents or keeps them below "market" because he likes his tenants and doesn't want to move....
And his property continues t rise with the RE appreciation....

So is his property's value increasing due to the rents of his competitors in spite of his lower rent?

Yes, because we appraise MV purpose a presumed SALE of the subject , and a new buyer could increase to market rents or find new tenants at end of below market rent lease or fill a vacancy - thus MV is predicated on ( market rents) .

I've appraised vacant small income properties, they are receiving zero rent income as vacant...a buyer purchases them with view of getting rent from future tenants.

 

[ucbruin]

It is the market in market rent that you are missing here, UC. You have to develop an opinion of market rent.

Where does the subject fit in its market. For sales. For income production.

I got it that we employ market rents based on our surveys....
But the actual rents are the actual rents....

 

[J Grant]

I got it that we employ market rents based on our surveys....
But the actual rents are the actual rents....

Good lord are you kidding us...what if a subject is vacant and actual rent is ZERO< is it thus worth nothing in the income approach ? NO, because any buyer with a brain and typical motivation would fill the empty units with tenants and rent the units at market rents.

Same thing if present tenants are family paying less... a new owner buyer would charge the tenants market rents when lease renews.

 

[Renee Healion]

And if I were your fairy godmother, UC, I could give you the house next door to yours for $0 but that does not make the property worth zero, does it? And if you happen to be appraising a property and the owner is content to settle for LESS THAN MARKET rent, then what? Does it mean it is worth less to the buyer in the definition of market value that you are finding? Who is that buyer? The current owner or the typical buyer?

 

[TRESinc]

The unit of comparison that matters most in my area is number of bedrooms. Tenants need X number of BR, the properties are advertised by #BR, the rental varies by BR count. And, in a different segment, the investors who rent to students literally rent by bedroom.

So if the reports were on fannie forms, they would show the units of comparison. The appraiser should comment on which ones matter and how they contributed to the appraiser's opinion of value. Here, if they are adjusting for FP (that so bugs me) in rambling old houses converted to apts then they are just going through the motions of form filling. Here, when I see that, I think no tenant rents by # of fireplaces. Did the appraiser even consider whether they are functional--after all, most serve as a knickknack shelf--and if you used them you'd burn the whole place down. So, are the fireplaces even fireplaces? (If they are, it is another question whether they are permitted to use them, or care to do so.)

FP from The List: It is a tell, here, that not too many brain cells were sacrificed to the appraisal gods.

This should be the topic of discussion in their reconciliation of SCA. Oh, that.

there is a city in my coverage area that historically hovers around 50% rentals including SFR, 2-4 units, condos and traditional apartments. they have a law which requires any fireplace in a rental unit to be disabled and has some hefty fines if they are not.

 

[Overimprovement]

I got it that we employ market rents based on our surveys....
But the actual rents are the actual rents....

When someone constructs a duplex from scratch with the goal of leasing it out, based on the income approach, is its value $0 1 second after the building is completed, but before any renters sign leases?

 

[ucbruin]

Good lord are you kidding us...what if a subject is vacant and actual rent is ZERO< is it thus worth nothing in the income approach ? NO, because any buyer with a brain and typical motivation would fill the empty units with tenants and rent the units at market rents.

Same thing if present tenants are family paying less... a new owner buyer would charge the tenants market rents when lease renews.

Sigh....
I get it.....
Did you say appraisers don't predict....
JK....

I love the appraiser depends....
For my limited 12 or so years as a staff appraiser....
I don't recall myself or any fellow staff hanging our hats on the income approach for the 2-4 family appraisals....
I'm not saying that I and my fellow staff were trained properly on this....
I'm just saying on 2-4 units I haven't seen it....
But most, if not all, of you seem to be indicating that income approach for a typical buyer of 2-4 units is an investor who would expect the income approach to be given most weight (maybe you didn't say that!!! )