4 unit multi family

[Tom4value]

Doesn't make a bit of sense, but what the heck, if they buy it!

It does if you look through the eyes of a buyer. There is a reason why a four family property is in the classification of “2-4 family”. That is the classification of a buyer who gives less emphasis on income and more on owner-occupied, “just want to pay the mortgage”. It is generally, “just them” who is in charge of finding tenants and maintaining the property. Unlike 5+ family owners, they don’t have people for that. A vacant unit is a scary liability and would factor into what they are willing to pay. If I can prove that with adjusted sales prices that are in line, then yes, a client will buy it.

 

[TerryRohrer]

the lack of the 4th comp because the lack of income for the 4th comp is offset by the lower risk of not having a vacant unit.

I assume comp should be unit. If the risk of no income per unit part of the time offsets the reward of income per unit the rest of the time, it is hard to argue that anything has value.

 

[J Grant]

It does if you look through the eyes of a buyer. There is a reason why a four family property is in the classification of “2-4 family”. That is the classification of a buyer who gives less emphasis on income and more on owner-occupied, “just want to pay the mortgage”. It is generally, “just them” who is in charge of finding tenants and maintaining the property. Unlike 5+ family owners, they don’t have people for that. A vacant unit is a scary liability and would factor into what they are willing to pay. If I can prove that with adjusted sales prices that are in line, then yes, a client will buy it.

This makes no sense at all...unless for some reason in X area, 2-unit and 3-unit buildings sell for as much as 4-unit buildings. Something I have never seen.

In my area, 4-unit buildings typically sell for more than 3-unit buildings and 3-unit buildings sell for more than 2-unit buildings. Buyers usually buy small income properties for income, regardless of whether a buyer plans to occupy one of the units. Most of the time when I inspect these properties, they are tenant-occupied or vacant.

The point is that the numbers don't lie. If a 4-bedroom property sells for more than a 3-bedroom property, we adjust for the lack of a third unit. The idea of a risk that a unit might be vacant between rentals makes it have no value is preposterous.

 

[TerryRohrer]

Now, don't anyone let J Grant know she agrees with me, and I with her. Hell will be frozen over by morning!

 

[App601]

No insults? This is an excellent post!

I assume you are just talking about what to do about the sales comparison approach so I will stick to that. I would say about 95% of my appraisals of 4 family properties results in less than 3 four family comps. The fact that you got a 3 family is great, I try to get one also.

My take is I only adjust for GBA. In the grid of the 3 family comp, under the 4th unit I give a zero. I explain in the comments, “ no adjustment is made for the lack of the 4th comp because the lack of income for the 4th comp is offset by the lower risk of not having a vacant unit. This is supported by the adjusted sales prices not supporting an adjustment.”

Thanks thats what I did he "No inslt"comment is due that theres a colleague y name Rex ( he even uses a dog as avatar) that loves to make nasty comments. Hve not seen him in quite a while Take Care

 

[Zoe]

Thanks thats what I did he "No inslt"comment is due that theres a colleague y name Rex ( he even uses a dog as avatar) that loves to make nasty comments. Hve not seen him in quite a while Take Care

Your fine using 3 unit or 2 unit comps. You could do direct cap. Remember you are applying market rent to the subject in a market value definition. Direct cap could work but you don't have to do it. You would have to do a pro forma income/expense on the subject to do direct cap. It doesn't matter whether your subject or the comps have a vacant unit. You might want to find out how long it has been vacant.

On market rent, you could even use probably 8 unit or 12 unit or 16 unit comps.

If you are doing fee simple, you would use market rent. If you are doing leased fee or leasehold interest, it would be different in market value definition.

You might have to get into discounted cash flow analysis if subject is rented way below or above market rents.

I think you can get by on sales comparison approach. You could do all three approaches. Cost approach probably would not hurt anything.

What are typical market terms on the leases? month to month, 3 months, 6 months, 1 year?

 

[Zoe]

My point to you in fee simple interest and market value definition, the terms of the lease are typically very short term leases for your subject. An investor wanting to buy your subject can change their lease terms very quickly. If you are doing leased fee or leasehold interest, you would lean more on contract leases in place.

Vacancy rate is important. That is why I said how long has it been vacant? Is it what is considered a "down" unit? Can it be rented? Does it have tons of damage? Is there demand in the local market for a vacant unit?

 

[Tom4value]

This makes no sense at all...unless for some reason in X area, 2-unit and 3-unit buildings sell for as much as 4-unit buildings. Something I have never seen.

In my area, 4-unit buildings typically sell for more than 3-unit buildings and 3-unit buildings sell for more than 2-unit buildings. Buyers usually buy small income properties for income, regardless of whether a buyer plans to occupy one of the units. Most of the time when I inspect these properties, they are tenant-occupied or vacant.

The point is that the numbers don't lie. If a 4-bedroom property sells for more than a 3-bedroom property, we adjust for the lack of a third unit. The idea of a risk that a unit might be vacant between rentals makes it have no value is preposterous.

"The point is that the numbers don't lie. "
Exactly! From a recent appraisal I did. Comp 1, 4 family, adjusted sales price $435,000. Comp 2, 4 family, adjusted sales price, $439,500. Comp 3, 3 family adjusted sales price $441,200. What is your adjustment for the lack of a 4th unit? Show your work.

 

[Zoe]

"The point is that the numbers don't lie. "
Exactly! From a recent appraisal I did. Comp 1, 4 family, adjusted sales price $435,000. Comp 2, 4 family, adjusted sales price, $439,500. Comp 3, 3 family adjusted sales price $441,200. What is your adjustment for the lack of a 4th unit? Show your work.

Okay, if they are best comparables, everybody knows a 4 unit will sell more than 3 units. All that is resolved in the sales comparison. JGrant can get off base sometimes.

 

[TerryRohrer]

Okay, if they are best comparables, everybody knows a 4 unit will sell more than 3 units. All that is resolved in the sales comparison. JGrant can get off base sometimes.

That is significantly more successful than you...I have never observed you being in the ballpark. What happens to the value per unit as the number of units changes from 1 to 2? from 2 to 3? from 3 to 4? from 4 to 5? If you have 3 sales, how do you reliably develop an indication of the difference between those sizes?