Multifamily Investing Source

The typical multifamily property appraisal process typically involves the following steps:

Ordering the appraisal: The borrower or lender orders the appraisal from a licensed appraiser. The appraiser will then contact the borrower or property owner to schedule a time to inspect the property.

Property inspection: During the property inspection, the appraiser will take note of the property's condition, size, location, and any other relevant factors. They will also gather information on the local housing market, including data on recent sales of similar properties in the area.

Analysis and research: After the property inspection, the appraiser will conduct further analysis and research to determine the market value of the property. This may involve using software programs and data analysis tools, as well as consulting with other real estate professionals and market experts.

Report preparation: Based on the analysis and research, the appraiser will prepare a written report that provides a detailed description of the property and the appraised value. The report will also include any relevant photos and market data, as well as an explanation of the appraisal methodology used.

Review and approval: The appraisal report will be reviewed by the lender or borrower to ensure that the appraised value meets their expectations. If the report is approved, it will be used to determine the loan amount for the property.

The entire process typically takes several days to a few weeks, depending on the size and complexity of the property, and the availability of the appraiser. It is important to work with a reputable and experienced appraiser who has a good understanding of the local real estate market and who can provide an accurate and comprehensive appraisal report.

A licensed appraisal is conducted by a licensed appraiser who has been trained and certified by a state-approved organization, such as the Appraisal Institute. A licensed appraiser is required to adhere to strict standards and regulations set forth by the state, and is held to a higher level of professionalism and accountability.

On the other hand, an unlicensed appraisal is conducted by someone who is not a licensed appraiser, and may not have the same level of training, experience, or professionalism. An unlicensed appraisal may be less comprehensive, may not follow the same standards and regulations, and may not be accepted by all lenders.

For multifamily loan purposes, it is recommended to use a licensed appraisal, as the lender will want to ensure that the appraised value of the property is accurate and meets the required standards. A licensed appraisal will also provide greater protection and assurance for the borrower, as the appraiser is held to a higher level of accountability for their work.

In a multifamily appraisal, an income comp is a comparable property that is used to determine the income-generating potential of the subject property. An income comp should be similar in size, age, location, and market conditions to the subject property, and should provide an accurate representation of the local rental market.

A rent comp, on the other hand, is a specific rental rate that is used as a comparison in the appraisal process. Rent comps are typically gathered from local sources, such as rental listings, property management companies, and real estate professionals, and provide information on the current rental rates for properties that are similar to the subject property.

Both income comps and rent comps are important tools used in the appraisal process, as they help the appraiser determine the value of the property based on the local rental market and the income-generating potential of the property. In general, the appraiser will use a combination of income comps and rent comps to create a comprehensive analysis of the local rental market, and to make an informed estimate of the value of the subject property.

USPAP-compliant means that a person or an entity is in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP is a set of standards and ethical guidelines developed by The Appraisal Foundation for the appraisal profession in the United States.

USPAP provides a comprehensive set of standards for the appraisal process, including the development of appraisals, the qualifications of appraisers, and the ethical conduct of appraisers. USPAP sets the standards for real estate appraisals, personal property appraisals, and business appraisal, and is recognized as the authoritative source for appraisal standards in the United States.

USPAP-compliant appraisals are typically required by lending institutions and other financial institutions to ensure that appraisals meet a minimum level of quality and consistency. An appraisal that is USPAP-compliant demonstrates that the appraiser has followed the highest standards of professionalism and ethical conduct in the appraisal process.

In short, USPAP-compliant means that an appraisal has been conducted in accordance with the highest standards of professional practice, and provides assurance to lenders, investors, and other parties that the appraisal is of the highest quality and reliability.

FIRREA stands for the Financial Institutions Reform, Recovery, and Enforcement Act. FIRREA is a federal law that was enacted in 1989 in response to the savings and loan crisis of the late 1980s.

The purpose of FIRREA is to promote the stability and soundness of the financial system, to protect depositors, and to provide for an orderly resolution of failed financial institutions. The act established new regulatory agencies, including the Federal Deposit Insurance Corporation (FDIC), and provided for the regulation and supervision of the financial services industry.

FIRREA also provides for the enforcement of federal banking laws and regulations, and established criminal and civil penalties for violations of these laws. The act also strengthened the powers of federal regulators and provided for the resolution of failed financial institutions through the FDIC's orderly liquidation authority.

Today, FIRREA continues to play a significant role in the regulation and supervision of the financial services industry and serves as an important tool for ensuring the stability and safety of the financial system. The provisions of FIRREA apply to all financial institutions, including banks, savings and loan associations, and credit unions.

To determine the value of a multifamily property investment, multiple methods can be used. Some common methods include:

Comparable sales approach: This method involves comparing the subject property to similar properties that have recently sold in the same market. The value of the subject property is estimated based on the prices of comparable properties adjusted for differences in size, location, condition, and other relevant factors.

Income capitalization approach: This method involves converting the property's expected net operating income into an estimate of value. This approach takes into consideration the property's income, expenses, and capitalization rate, which is calculated by dividing the property's net operating income by its current market value.

Cost approach: This method involves estimating the cost to replace the subject property and then subtracting any depreciation. This approach is used when the property has unique characteristics that make it difficult to find comparable properties, or when the property is in a declining market.

Market data approach: This method involves analyzing market data, such as rental rates, vacancy rates, and sales prices, to estimate the value of the subject property.

In addition to these methods, it is important to consider other factors that can impact the value of a multifamily property, such as location, economic conditions, local market trends, zoning and land use regulations, and the physical condition of the property.

A professional appraiser can help determine the value of a multifamily property investment by using a combination of these methods and taking into consideration all relevant factors.

Discounted Cash Flow (DCF) is a financial valuation method used to estimate the value of an investment or asset by projecting its future cash flows and discounting them back to the present value. It is measured by the following steps:

Projecting future cash flows: This involves estimating the expected cash flows from the investment or asset for a specified period of time, usually 5 to 10 years.

Discounting the cash flows: The future cash flows are discounted back to their present value using a discount rate, which represents the required rate of return or cost of capital. This takes into account the time value of money and the risk associated with the investment.

Summing the discounted cash flows: The present value of each year's cash flow is summed to obtain the overall present value of the investment.

Comparing the present value to the cost of the investment: If the present value of the investment is greater than the cost, it is considered a good investment. If it is less, it is considered a poor investment.

DCF is considered a reliable and accurate method of measuring the value of an investment, but it requires a significant amount of data and forecasting, and it is sensitive to the accuracy of the inputs used, including the projected cash flows and discount rate.

A rent roll is a document that lists all of the rental units in a multifamily property, along with the rental income, lease terms, and other important information. Here's how to read a rent roll:

Unit Information: The rent roll typically starts with a list of all of the rental units in the building, including the unit number, type (e.g. studio, one-bedroom, etc.), and current occupancy status (e.g. vacant, occupied, etc.).

Rental Income: The rent roll will show the current monthly rent for each unit, along with any additional income (e.g. parking, storage, etc.).

Lease Information: The rent roll will list important information about each tenant's lease, including the start and end dates, security deposit amount, and rent increase provisions.

Tenant Information: The rent roll may also include the tenant's name, contact information, and other relevant information.

Occupancy Data: The rent roll may show the occupancy rate for the property, as well as any unit turnover information.

Other Information: Depending on the rent roll, other information may be included, such as utility expenses, property expenses, and other financial data.

It's important to carefully review the rent roll to ensure that all of the information is accurate and up-to-date, and to understand the current and potential rental income for the property. The rent roll is a valuable tool for multifamily property investors, as it provides a comprehensive overview of the property's financial performance and occupancy status.

Whether you need to use a MAI (Member of the Appraisal Institute) certified appraiser or not depends on the requirements of the lending institution, the purpose of the appraisal, and the specific regulations of your jurisdiction. Some lending institutions require appraisals to be performed by MAI certified appraisers, while others may accept appraisals from appraisers who are not certified by the Appraisal Institute. If you are unsure about the requirements for your specific situation, it is best to consult with the lending institution or a real estate professional for guidance.