8. BRRRR Strategy and the full appraisal
This is the next installment in a multi-post series on financing your rental investment properties using the BRRRR strategy.
Back in late 2020, I had one of my turnkey properties under contract to sell for $75K. I owned the property for 5 years. It was fully remodeled with the same Section 8 tenant paying $900 per month. Everything looked fine with the lender and then we had the appraisal. A week later the appraisal came back at $55K. I was shocked! I submitted the necessary documentation to the lender for reconsideration with my own comparables (Disclosure: I am also a licensed real estate broker). However, the appraiser still refused to make the adjustment.
I thought that perhaps it was not meant to be and was happy to hold on to the property. However, a week later, another investor called about the same property, and I agreed to a contract again for $75K. The new appraisal came back at $80K. What happened?
Well, my first mistake was not meeting the appraiser at the property with the first contract (I was traveling at the time). With the second contract, I made sure to meet the appraiser to give him access. I provided him with my own comparables, a detailed list of costs for all the repairs and the lease. I was simply giving the appraiser a window in to how I arrived at the ARV. The appraiser can either accept them or not.
So why was there such a huge value gap between the two appraisals? The first appraisal did not discount distressed sales in the area such as REO’s, cash sales, handyman specials, and fixer uppers. Using distressed values decreased the ARV of my fully renovated, turnkey and rent stabilized property by $25K. The comps I provided to the second appraiser were only owner-occupied sales or fully renovated turnkey sales. This made all the difference.
PRO TIP: Always meet the appraiser at the property with your comps, lease, and repair list. If you cannot, have someone like your property manager meet him.
Looking for funding? REI Trader, LLC has purchase, refi and fix and flip loan programs for your SFR, rental and multifamily portfolios. For rates and terms, please email jonathan@reitrader.com
Category : Blog