Single Family Home Portfolio Valuation

[Steven Barr]

In the eyes of the lender (specifically for cash-out refinance), are single family home portfolios based on the income they produce? or strictly comparable properties?

Example: You buy 20 duplexes for $75k each on the open market ($1,500,000 total in property). Put a renter in each side at $800/unit. Your gross annual income is $384k, assume expenses of maybe 40%, and your NOI is about $230k. If you are buying in a 10% cap rate area, the portfolio is now suddenly worth $2,300,000.

On a 75% LTV commercial cash-out refinance loan, you could keep 25% equity in the newly valued $2,300,000 portfolio and receive $1,725,000 (minus closing costs) back to pay off your old loans and go buy more homes

The big question here is whether a lender is going to view the value of the portfolio as $1,500,000 because of comps, of $2,300,000 because of income 

Thanks for the help on this guys!