Valuation Methods
Small multifamily properties are valued using both income-based and comparable sales approaches. The income approach considers net operating income (gross rent minus operating expenses) and applies a capitalization rate to determine value. The comparable sales approach looks at recent sales of similar multifamily properties in the area.
Both methods should be used and reconciled. An agent experienced with investment properties can present the property's financials clearly — rent roll, expense breakdown, cap rate, and cash-on-cash return — in addition to the standard comparative market analysis.
Marketing to the Right Buyers
Small multifamily properties appeal to two distinct buyer groups: investors seeking cash flow and appreciation, and owner-occupants seeking to reduce their housing cost by living in one unit and renting the others. Your marketing should speak to both audiences, emphasizing investment returns for one and lifestyle benefits for the other.
For investor buyers, provide a detailed financial package: current rents, market rent comparables, operating expenses, vacancy history, and projected returns. For owner-occupant buyers, highlight the primary unit's features and the lifestyle of having rental income offset or eliminate the mortgage payment.
Tenant Considerations
If the property is occupied, existing leases survive the sale. Provide copies of all leases, tenant payment history, and security deposit information to potential buyers. Cooperative tenants who keep their units clean and allow showings make the property more attractive. Consider offering tenants incentives for cooperation during the sale process.
If any units are vacant, you have the choice of filling them (demonstrating income to buyers) or leaving them vacant (giving buyers flexibility). In most cases, occupied units with paying tenants are more attractive to investors than vacant ones.