Let's Talk About Multi-family Properties

[SillyMe]

I recently reviewed several multi-family properties and was kind of shocked at some of the things that I came across.

All of the files that I reviewed were completed by CR appraisers (1-4 units). All but one did not appear to consider the additional income produced from additional bedrooms. I had appraiser's adjusting $1,500 for a fireplace which can be a liability but $0 for a 3br vs. a 2 br. As a landlord, I will tell you that HUD pays about $150 more a month for a 2 vs. a 3 br (in my market area) and investors are making their buying decisions on the income potential of the property.

Some of the adjustments or lack of were indicative of the appraiser not being competent to appraise a multi-family property. The adjustments and methodology used were more consistent with a SFR appraisal than that of an income producing property.

It was concerning.


Sorry, I can't edit the spelling error in the title

 

[Tim The Enchanter]

I go more with GBA / GLA than bedroom count. Around here the rental data is sketchy and limited. Also what some agent thinks is a bedroom, well.....
But, sales data is usually / hopefully pretty good, so sales comp approach is most useful.

 

[bnmappraisal]

Some of the adjustments or lack of were indicative of the appraiser not being competent to appraise a multi-family property. The adjustments and methodology used were more consistent with a SFR appraisal than that of an income producing property.

(my bold)
Sounds like they were using a book of "adjustments"

 

[SillyMe]

Lee, I am going to disagree with you and would highly encourage you to research the rental rate in your market area for properties with different bedroom counts.
Find a large development and see what they are charging for units with additional bedrooms. As an investor, the number of bedrooms has a direct impact on the amount of rent I can charge for a property thus has a direct impact on the amount that I am willing to pay for a property.
I don't really look at differences in gba when purchasing unless the property appears to be smaller than what a typical renter would prefer. It is all about the bedroom count.

 

[Gobears81]

You are right in some markets, but I recall investors converting garages to an additional bedroom to improve its rent on section 8. They kept the garage door on the outside, but if anything, the market value declined despite the additional bedroom as it was not designed to be configured in that manner and there was obviously no longer a garage

 

[SillyMe]

Was the garage conversion legal?

Again, as an investor, if I am buying a property for the sole purpose of earning money, I don't care if the garage is not usable because I would be making more money with it converted to a bedroom. To investors, a bedroom is worth more than a garage (at least in my market area).

It almost sounds like you are combining the sales comparison approach and the income approach. They are 2 separate approaches to value.

I am not trying to be critical and thank you for having this conversation with me. I started this thread to have this exact type of discussion. Most residential appraiser's don't look at an income producing property the same way an investor would.

 

[ucbruin]

@SillyMe

Is it your opinion that the income approch should be given most weight???

@bnmappraisal

Why I oughta....

 

[SillyMe]

In my market area, if someone is buying a property for the income producing capacity, I have historically weighted the value towards that indicated by the income approach but that might not be what is indicated in other market areas.

 

[Tim The Enchanter]

(my bold)
Sounds like they were using a book of "adjustments"

Maybe this one. Easy to find with giggle.

http://www.jackjeffcoat.com/appraisals.asp

 

[SillyMe]

Our local board of realtors president was also an appraiser and he provided the board with a list of adjustments. Sad part of it is that he now sits on the state appraiser board.