Priced on NOI, appraised on comps, $80k apart

You've got the appraisal mechanics right. On a 2 to 4 unit the sales comparison grid drives the opinion of value and the income approach on the 1025 is support, sometimes reduced to a gross rent multiplier that gets a sentence of commentary. Underwriting guidelines and appraiser practice both vary, so confirm with your lender in writing which approach they'll rely on before you set your contract price.

The consequence you've drawn is real. You cannot force value at four units the way a 5-plus operator does, because the buyer pool and the appraiser both anchor to comps that include owner-occupied sales. Raising NOI still does two things for you: it improves cash flow, and it improves your position on the rent schedule, which matters when the appraiser adjusts for condition and rents. It doesn't mechanically capitalize into price.

Before the exit question, that $52k needs a look. A broker NOI on a small building almost always omits management and capital reserve. Put 8 percent of collections against management and $1,000 to $1,500 per door per year against roof, mechanicals, and turns, and a $52k line often lands in the low $40s. At $720k that's a 5.8 or so, and at current debt costs you're likely paying more for the money than the asset yields. That's the number that should decide this, well before exit cap theory.

What you haven't raised is the gap itself. If the appraisal lands at $650k on a $720k contract, your lender lends against the lower number and you bring the difference in cash or renegotiate. Get an appraisal contingency with actual teeth, and know your walk-away price before you order the report.

Ran arbor's numbers the way rena-expert framed them. $52k less 8 percent management on roughly $67k gross is about $5.4k, less $1,200 per door reserve is $4,800. That's $41.8k. On $720k that's 5.8 percent. On the $650k the comps support it's 6.4 percent. Neither of those is 7.2, and the seller's broker knows exactly which one he chose to publish.

What's a gross rent multiplier? I keep seeing GRM next to cap rate and assumed they were the same thing said two ways.

GRM is price divided by annual gross rent, no expenses in it at all. So arbor's deal at $720k on $67k gross is about 10.7. It's crude, which is why small multifamily leans on it, because you can get gross rents on comps far more reliably than you can get real expenses. Cap rate uses NOI, so it depends on whoever built the expense line, and that's where the argument always is.

The reserve number people quote is always too clean. A four unit turn with paint, floors, a couple of appliances and a week of vacancy lands me between $4,000 and $7,000, and that's without touching a kitchen. If two units turn in a year your $4,800 reserve is already spent and you haven't looked at the roof.

Comp scarcity is worse in my markets. Two fourplex sales in eighteen months in the whole county, and one was a family transfer. Appraiser adjusted two duplexes upward and the number came in soft. Nothing you can argue with, there's just no data.

The exit question answers itself once you sit through a few showings on a fourplex under about $700k. The people competing with you are house hackers with a low down payment loan, and they'll pay a price an investor spreadsheet rejects because they're comparing it to rent, not to a cap rate. That's the buyer keeping your comps up. It's also why the good ones don't sit.

This is the same fight I have when someone tries to buy a service business off a multiple of a number they built themselves. The multiple isn't the problem, the line items under it are, and the seller always gets to draft them first.

Waiting has a cost, but at $720k versus $650k in comps you're being asked to pay for the seller's hope. I'd send the offer at the comp number with the reserve and management in the expense line, in writing, and let it sit. Some of these come back.

How much of the appraisal contingency is actually negotiable? I assumed it was standard language and either you have financing or you don't, but the way you're describing it there's a difference between one that lets you walk and one that just lets you ask nicely.

Check what the parcel is zoned for before you write any of this off. If the lot allows a fifth unit, the number changes twice, because you'd move to commercial debt at five units and you'd lose the residential loan advantage you bought the thing for. I've seen people chase that fifth unit and hand back the exact edge that made small multifamily worth doing.

At 5.8 unlevered with debt priced above that, you're putting cash in every month to hold it and calling it income. I want the rent to pay me, not the other way around.

Six months ago the fourplex bucket looked like the obvious step up from houses and now I'm less sure. Comp-driven value, owner-occupants bidding above investor math, and expense lines the seller writes. It's still multiple rents from one roof with a residential loan, which is the whole reason I'm here, so I'm not throwing the bucket out. Just moving my price way down and probably waiting longer than I wanted to.