Appraising Single-family Rental Portfolios

[BFGAppraisal]

Has anyone appraised a portfolio of single-family rental properties? Most of the appraisers and lenders I have talked to have only had individual reports done for each property in a portfolio, and then they assume that the sum of the parts equals the value of the whole. This does not analyze discounts or premiums for the portfolio and is not the best way to appraise a sale of 35-50 SFR properties from one seller to one buyer.... If anyone could send me an example of a narrative report for multiple SFR rentals and one final value opinion, that would be excellent...

 

[Howard Klahr]

Its like doing a subdivision analysis kust with multiple locations

 

[NachoPerito]

I have done them. You can PM me if you want.
I treated the rental portfolio like it was a large multifamily property.
I also gave values as if sold individually and I did it all in one report with 250 pages.

 

[BFGAppraisal]

Its like doing a subdivision analysis kust with multiple locations

I thought about a unit-sales analysis but that doesn't work with multiple SFR properties scattered around town. Subdivision analyses rely on being able to determine an absorption rate for the sale of unimproved lots, and accounts for holding costs and the time value of money with regards to when the revenue will be realized and what that revenue is worth as of the value date. These are rentals being purchased for income-production and to be held, not sold for profit upon sale.

 

[Howard Klahr]

but that doesn't work with multiple SFR properties scattered around town.

Actually it does. Oh and thanks for the lesson on how a subdivision analysis works.

These are rentals being purchased for income-production and to be held, not sold for profit upon sale

Is that actually the highest and best use? If not, then that wouldn't reflect market value

 

[Gobears81]

ost of the appraisers and lenders I have talked to have only had individual reports done for each property in a portfolio, and then they assume that the sum of the parts equals the value of the whole. This does not analyze discounts or premiums for the portfolio and is not the best way to appraise a sale of 35-50 SFR properties from one seller to one buyer

My experience has been that there is less of a discount versus the individual values when the group of houses is more homogeneous, particularly in terms of location. For example, there was a sale of about 15-houses where they were all within one block, all with the same characteristics, and all targeting the same tenant type. It was purchased by a woman from California who was attracted to how much lower the multipliers were in this area, and the bulk sale actually resulted in a premium vs the value of the individual homes. But when homes are scattered, you might get buyers that won't invest in a town or a part of a town, or don't do Section 8, but they'll be interested in a portion of the portfolio. That often increases the discount vs the individual values. FWIW, doing a sellout analysis does not guarantee that you would see a large discount like you might on subdivisions, given that the homes are income-producing assets, whereas the subdivision lots typically have holding costs until sellout.

 

[BRCJR]

The feds, I spoke with, do not require a discounted value when more than four units are involved in a portfolio such as discussed.
If more than four of those units are in the same subdivision a discounted value would be required for those specific units but not the whole.

 

[hastalavista]

The feds, I spoke with, do not require a discounted value when more than four units are involved in a portfolio such as discussed.
If more than four of those units are in the same subdivision a discounted value would be required for those specific units but not the whole.

Wouldn't this depend on how the lender wants to evaluate its risk and structure the loan?
The retail value of the individual properties are going to have to be determined no matter what.
But a bulk value (as a lender) may be what I'm going to use to structure the deal.

 

[Michael P Jacobs MAI]

Just my opinion - first, do individual values with two approaches although a "portfolio" income cap approach might be sufficient since the values usually scale (if properties are homogeneous). Individually, the highest market value between sales and income will tell you each HBU and by definition will be your conclusion of value (sales, most likely). I think your state board would expect to see a bulk-sale analysis but it's not supposed to be a liquidation value and not even necessarily a lower value. If market supply and demand (prices/exposure time) will not be disturbed by introducing 35-50 new listings to your market (ahem...) then there's no discount because the properties would not necessarily be purchased by a single buyer. Even if you cut some corners with a qualitative analysis, you still have to address HBU and bulk-sale value or you have limited the scope of the report. Just my $0.02. I've done a lot of these and those clients keep coming back, so I must be doing something right because I'm not the cheapest.

 

[PL1957]

I think your state board would expect to see a bulk-sale analysis ...

I thought the appraiser and client were supposed to set the scope of an assignment ...