Posted by Steve on September 14, 2004 at 15:59:11:
Cap rate is all relative and does not wuite determine the value. Revenue generating properties in high appreciating areas are tough to find. WHy would you sell a house that is producing positive cash flow and appreciating at the same time. I have found that interest only arms are a good way to create positive cash flow with low cap rates. I have a house with a 320K note for 1500 per month that produces 2K a month in rent.
How to Comp Duplex, Triplex and Foreplex? - Posted by whyK-CA
Posted by whyK-CA on September 13, 2004 at 18:01:34:
Hi.
Could someone explain me how to come up with accurate comp for duplex, triplex and foreplex?
I came across situations, where those multi units are nested in SFR houses. There is no recent comps to compare with in neighborhood. Seller asking some $$$ amount and I do not know how to figure out right comp for these kind of situations.
As matter of fact, I just got a call from potential seller. This duplex is more like two houses side by side attached by garage only. There are bunch of SFR?fs, no recent comparable sales of duplex. How would you figure the comp in this kind of situations?
How do appraisers come up with numbers.
Thanks in advance.
WhyK-CA
What’s a Foreplex? - Posted by Rick
Posted by Rick on September 14, 2004 at 10:24:39:
Sounds very Erotic 
GRM - Posted by ken in sc
Posted by ken in sc on September 14, 2004 at 06:56:45:
Appraisers use whats called a GRM, or gross rent multiplier. If you have any sales of income producing property, you divide the sales price by the gross rent to produce a number for example, if a duplex sold for 100,000 and it receives 1000/month in rent, the GRM is 100. Therefore if your duplex receives 800/month in rent, it would be worth 80,000.
Re: How to Comp Duplex, Triplex and Foreplex? - Posted by CA
Posted by CA on September 13, 2004 at 23:54:15:
It seems like you are very busy, which is very good.
Where are you in CA? I am 30 miles east of Los Angeles, in Chino Hills?
Send me email if you like, maybe we can do some deals?
Re: How to Comp Duplex, Triplex and Foreplex? - Posted by Tom-FL
Posted by Tom-FL on September 13, 2004 at 18:47:45:
Use the NOI method. If it won’t cash flow, who cares what the comps are?
Re: GRM - Posted by gwtx
Posted by gwtx on September 16, 2004 at 08:36:34:
Hi Ken in SC,
This is just to add to your comment about GRM.
We (and others) actually will take the asking price or the sale price and divide that number by the gross rent PER YEAR.
A simple equation would be this:
Purchase price / Gross Rent (annual) = GRM
In the example given above this would be :
$100,000 / ($1000 x 12) = 8.33 GRM
A GRM of 5-6 is acceptable. A GRM of 3 is better. A GRM of 8-9 is getting to be not acceptable.
Hope this Helps
gary
Re: GRM - Posted by kent
Posted by kent on September 14, 2004 at 08:49:14:
What the sales price was 77,000 rents = 1,500 whats the multiplier
Re: How to Comp Duplex, Triplex and Foreplex? - Posted by whyK-CA
Posted by whyK-CA on September 14, 2004 at 24:05:56:
Busy trying to find a niche. I’m in No Cal. Only time I go to LA area is when I take my kids to Disneyland.
whyK-CA
Re: How to Comp Duplex, Triplex and Foreplex? - Posted by whyK-CA
Posted by whyK-CA on September 13, 2004 at 19:50:49:
Hi Tom.
I?fm not sure if you can determine the value just by NOI alone. We have this situation where housing price are very high, while the rents have been at the bottom for awhile.
The following is actual example of 4-unit property which is in sales pending stage right now. It?fs not even close to cash flow unless you put big sum of down payment.
Asking price: 879,000
Scheduled Gross Income: 51, 420
Net Operation Income: 31,450 or 2,620/month
10% down, 90% financed at 6%, monthly payment PI 4,743/month
20% down , 80% financed at 6%, PI 4,216/month
30% down, 70% financed at 6%, PI 3689/month
40% down, 60% financed at 6%, PI 3162/month
40% down, 60% financed at 4%, PI 2517/month
Any other thoughts, anybody?
Thanks.
WhyK-CA
Re: GRM - Posted by ken in sc
Posted by ken in sc on September 14, 2004 at 09:28:46:
77,000 divided by 1500 = 51.33
Just like with regular comps, the more data the better. If you have 4 income producing comps, they will give you a range of GRM’s and you can look at other factors such as appeal and location to try and guess the best GRM for your property.
ken
Re: How to Comp Duplex, Triplex and Foreplex? - Posted by Steve
Posted by Steve on September 14, 2004 at 16:03:10:
Interest only. You will get a lower rate and the same payment on 400,000 would be 4000 per month. You could take the extra 700 per month and apply towards principal and be ahead of the game.
Re: GRM - Posted by whyK-CA
Posted by whyK-CA on September 14, 2004 at 10:34:25:
Hi Ken.
Thank you for your post. In the following example, which I took from actual pending property:
Asking price: 879,000
Scheduled Gross Income: 51,420 ( or 4,285/mo)
GRM is 205, assuming the seller got the asking price. Now I am not sure how I should use this number. If appraisers cannot find any recent multi unit sales close enough in time and distance, say 6 months and 1 mile radius, do they use GRMs of near by SFRs to do the comparison? (GRM on SFR are much higher.) Or do they just expand the search further in time and space until they find similar multi-unit property?
Thank you for your time.
Whyk-CA
Re: GRM - Posted by ken in sc
Posted by ken in sc on September 14, 2004 at 11:53:58:
Typically they expand the search as you say in time, then location. You can always appraise it using a cap rate if no comps at all. If there are no multi’s in the area, is there a reason for this? Is your property conforming to zoning laws?
Also, get there income taxes and rent roll from the previous year. That way you can get a true picture of expenses.
Re: GRM - Posted by Charley M
Posted by Charley M on September 14, 2004 at 11:18:00:
Great article. I understand the math, and the figures aren’t difficult to calculate. My only question is: what is a good GRM?
Thanks,
Charley
Re: GRM - Posted by whyK-CA
Posted by whyK-CA on September 14, 2004 at 13:38:08:
Hi Ken.
I am looking at two completely different areas now. One area has other multi?fs, the other don?ft but zoned correctly according to the seller. I will of course check more, if I am going to move forward with it. My main objective with this thread is to understand the mechanics of appraising smaller multi units in general, though.
?gYou can always appraise it using cap rate if no comps at all.?h
The book I just finished reading said the cap rate is usually 8-12, depending on the market. It is somewhere around 3.5-5.5 over here if I look at all For Sale properites in entire county. I’m not sure where I should get a good cap rate for my area. Should I use average cap rate, in this case 4.5?
With the following date, what would you say, in your opinion, the fair market value of this property should be? $698,888?
Asking price: 879,000
Net Operation Income: 31,450
Cap rate is 3.58
If I use the cap rate of 5.5, the price should be: 571, 818, about $300K below asking price.
If I use the cap rate of 4.5, the price should be: 698,888, about $180K below asking price.
I appreciate your help. Thank you very much.
Whyk-CA