Setting Realistic Expectations for the Appraised Value of 
Duplexes, Triplexes & Fourplexes

by: Mike Hanna, Investmark Mortgage -with- Lynn Dee Murrow, Lifestyles Unlimited® Inc.

            Real estate investors are often attracted to 2-4 family dwellings (i.e., duplexes, triplexes and fourplexes) because:
              • they have high potential cash flow;
              • conforming loans (30-year, fixed rate mortgages) are available for long-term financing; and
              • there is less competition because owner occupants rarely buy 2-4 family dwellings for their personal residence.
        This creates a compelling draw for real estate investors.
        When a real estate investor finds a 2-4 family deal where the returns look compelling, they are often frustrated that the income the property produces is not reflected in the appraised value. This may result in higher then expected cash out of pocket requirements, or even blow up the deal. How does this happen?
    The Myth
    The disconnect occurs because many investors believe that 2-4 family properties are “multifamily” properties, and are valued in the same way apartment buildings are appraised. When the investor uses a rental multiplier or Net Operating Income (NOI) valuation approach to determine the property value, they will often overestimate the ARV, which throws off their financial analysis.
    Consider the following example:
    Investor John was recently looking at a duplex that had 3 bedrooms and 2 bathrooms on each side, and would rent for $950 per side per month. With $1,900 per month in total rent, Investor John assumed the value would be based on a Gross Rent Multiplier (GRM) of at least 100 (meaning 100 X rent), so his ARV estimate was $190,000. Although appraisers do look at the GRM on investment properties, it’s not used to determine the value of 2-4 family dwellings for a conforming or conventional loan. The appraised value for this property, based on comparable sales came in at $170,000, substantially lower than Investor John expected.
    Even worse, some real estate investors analyze 2-4 family properties as if they are small apartment buildings, using a Net Operating Income (NOI) calculation multiplied by a Capitalization Rate (Cap Rate) for the area to determine the property value. Although it’s always good to know the estimated NOI, the lender in a 2-4 family deal will not allow the Appraiser to use this multifamily valuation method.
    Although they are multi-family by nature, 2-4 family properties are treated as single family properties from a lending perspective. This means they will be appraised just like a single-family property, using a comparable sales approach. In many markets, there are not enough comparable properties sold in the area to support a value equal to GRM or NOI valuations.
    Why is this the case?

To answer this question you have to ask yourself: who buys these types of properties? With some exceptions, most 2-4 family property buyers are real estate investors. What do real estate investors focus on when buying a property? Most real estate investors want to buy at a discount to the market value, and many times are buying off market deals. When there is not enough sales data available, the value becomes more difficult to determine, and this in turn tends to lower the appraised value.


Many times, but certainly not all, we see the appraised value for 2-4 family deals equal the purchase price plus the needed repairs. In Investor John’s deal, the purchase price was $152,000, with $16,000 in repairs. The appraised value was $170,000. However, his positive cash flow is estimated at $800 per month with a cash-on-cash return of approximately 24%. He had to bring $40,000 to closing, but the 24% return on his investment was attractive to him, and met his investment criteria, so he purchased the property.

Our point is this, don’t be disappointed if the appraised value of a 2-4 family deal is not where you think it should be based on the rental rates or net operating income. Set your expectations correctly up front by understanding how your lender will determine the property’s ARV. Determine your personal investment strategy, including the minimum returns you need to add a property to your portfolio. When you understand how your lender will calculate the ARV of a property, and you have clarity regarding your personal investment needs you will find a deal that works for you!

Looking for a Hard Money Lender? Contact Mike Hanna with Investmark Mortgage at:

Mike Hanna
214-336-9433 (Mobile)

Would you like to learn more about real estate investing? Lifestyles Unlimited® provides real estate education and mentoring programs for new and experienced investors. Find out more right here on our site or with a quick call to 866-945-6565. Also, feel free to attend a free introductory class with the yellow button above.


  1. Douglas Trimmer says

    Excellent article. Very helpful. I’m an experienced investor but have been continually running into this problem of how to get the ARV of small multi unit properties. This article gave me a clear process for how to get that ARV. Thank you!!

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