I invest in 1-4 family properties and come across this often. I think in price per unit using the sales approach for after repair value… but I’ve spoken to brokers who try to push cap rate logic or price per sf.
I use PPU due to having an easier time estimate what an appraiser will value the property along with potential adjustments v a straight price per sf methodology or a cap rate method that isn’t ever considered for 1-4 family.
Anyone else have this issue? How do you convince your opposing side to see your thought process? I’ve gotten just a shrug and they don’t care lol
Cap rate v PPU v PSF (1-4 fam)
byu/Alpine-Jon inrealestateinvesting
Posted by Alpine-Jon
1 Comment
PPU makes way more sense for small multifamily since that’s exactly how appraisers look at it. Cap rates are pretty useless when you’re dealing with 2-4 units because there’s not enough comparable rental data and the financing works totally different than commercial properties.
I’ve had same experience with brokers pushing cap rates – they either don’t understand the appraisal process or they’re trying to make their listing look better on paper. Just stick to your guns and explain that lenders care about appraised value, not some theoretical cap rate calculation.