Posted by Nate-WI on October 22, 2005 at 16:17:58:
Very good response. I know that neighboorhood and there are alot of rentals. The place is pretty solid with updates so I don’t think alot of money would be needed for repairs. Here is the link.
Duplex appraisals - Posted by Nate-WI
Posted by Nate-WI on October 21, 2005 at 20:47:05:
Hey folks,
If I want to order an appraisal on a duplex how does the appraiser determine the value? Is it just like a SFR where they walk thru the property and check comps? Obviously there are differences between the two. Any thoughts?
Nate-WI
there are 3 ways to appraise… - Posted by David Krulac
Posted by David Krulac on October 22, 2005 at 11:20:36:
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Income approach, how much income does a property generate, what are the expenses, what is the net income?
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Replacement Costs, what would it cost today to build that same property?
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Sales Comparable approach, what have other properties recently (like last 6 months) sold for in the vicinity?
For SFH, duplexes, and any residential property that is 4 untis or less, the most accurate approach is the sales comparable approach. The exception would be a new build in which replacement cost, which would be the same as sales comps would also work.
But for my money the income approach does not accurately represent the value. Many duplexes are owned by Mom and Pops who under rent and sell for much more than the income would indicate.
I also don’t like price per unit, and gross rent multipliers for small units (less than 5) as they do not take into consideration, who pays the heat?, what are the expenses, what is the age and what is the construction, and was the building built as a multi or converted from a SFH?
Re: Duplex appraisals - Posted by jimmy
Posted by jimmy on October 22, 2005 at 08:09:10:
multi-family appraisals are often done with 3 different calculations. if there are comparable transactions in the area (for duplexes with similar bedroom/bathroom and sf configs, with similar rents), then these comps will be the best possible indication of market value.
Sometimes, there are no such comps, but there are “semi-comps”. semi-comps would be 4-plexes, or duplexes in a different area, or whatever.
When there are no real comps, there are two more ways to calculate value. One is a capitalization of income. they take the gross rents, and apply some multiplier to it, based on the prevailing economics in the area.
Another method is to compute the cost of replacing the builging, and then appyng a depreciation factor. For example, if your 2000 sf duplex would cost $75 a foot to rebuild, thats a RC of 150K. But your duplex is 20 years old. The appraiser might knock 30% off to adjst the RC for the fact that your bldg is not new.
Anytime you don’t have good comps, the appraiser can be your best friend or worst enemy. because the appraisal is somewhat speculative.
Re: Duplex appraisals - Posted by Nate-WI
Posted by Nate-WI on October 22, 2005 at 08:24:06:
Ok Jimmy thanks for the tips. Here is what I’m looking at for this particular deal. It would be my first rental and it looks ok so far. The appreciation rate is marginal at best here in NE WI. 3-5% is typical.
Here is what I do know…
The duplex has updates including windows, vinyl siding, furnaces, porches, electrical and interior decorating. The lower unit is leased at $490/month and the upper is vacant but was renting at $425/month. The tenants pay for utilities and each unit has three bedrooms and recent flooring and paint. The mechanicals are separate for easier management I would guess.
No pets are allowed.
Each unit is a 3 br, 1 bath
Taxes are 1800 bucks a year
1800 square foot
No garages for either unit
Seller is willing to give me two months vacancy money to find a tenant for the upper unit.
One more thing…he’s ok with nothing down!!!
Its about 3-4 minutes from my home and the seller will do owner financing with very easy terms with a short balloon. He is asking $86K for it. I don’t know what it appraises at or comps yet. Will have that info early next week. If I got good terms I would imagine I should be able to positive cash flow on this. If we complete a note deal what do you think I should propose for terms? Interest only for a year and then re-fi, pulling equity out of it then? Quarterly payments? Alot will hinge on what he wants but I need to bring an offer to the table so we can start talking about it. Looking for anyone’s thought’s on this?
Nate
Re: Duplex appraisals - Posted by thoughts
Posted by thoughts on October 22, 2005 at 14:55:53:
Income is $915
Minus $150 taxes
Minus amount for vacancy, taxes, maintenance, lets say $200
Minus amount for profit, lets say $100
Leaves you $465 for the mortgage pmt.
$85k at 6% is $509 $85k at 7% is $565
$75k at 6% is $449 $75k at 7% is $498
If you get in now on a note but have to refi a year later at 7% (or more) you will likely be in the red not to mention two sets of closing costs. This is just a rough workup - you need to workup the actual numbers that realistically apply to you and the units and make your offer based on those realities. That is, if you plan to treat it as a cash flow property.
If the place is going to need work you need to increase the maintenance figure, you might want more cash flow for your troubles, you need to include financing costs, etc. IMO unless you can negotiate a lower price, this deal may not work if you plan to hold the place. The seller seems to be financially sophisticated and his willingness to finance for a year, give you free rent, nothing down, etc. could just be suckering you into his problem. Be sure to get the place inspected should you purchase. You think the place might be worth a lot more but I find that questionable because you’d think the seller would already be selling for more if he could and certainly without providing all the selling gimmicks he’s offering.
On the other hand, maybe he’s motivated for some personal reason, maybe his rents are low, and maybe the place is worth more - the high taxes seem to indicate that, but I could be wrong not knowing your area. You need to research. Duplexes are priced pretty much by sales comps just as single family homes are. Ask a local realtor to give you a computer list of all the current listings of duplexes in the area and also a list of all the sold duplexes in the area for the past 6 months or so. This should quickly give you a fair idea of the property’s value. FYI you can also ask a realtor or title co. or check county records for a property profile of the place to find out when and what the seller paid for the place and what is currently owed on it.