My question is about appraisal's. I am looking to get into rentals and I see you can get loans for up to 80% LTV. I know in the past if the appraisal came out higher than the asking price you could have equity right away. However, now a days the appraisal will come out to whatever amount you are paying for the property. I know this from my own purchase of my personal home. Does this only matter if you are going through a bank? I have found some property that I would think should appraise more than the asking price but I know the appraisal will come out at the final sales price. Is there a way around this issue?
The appraisal is "based on" comps. It does tend to come in very close to the final sale price but I have seen it come in over or even below the sale price which could cause some issues with financing.
I think there is a difference in appraisals when buying retail versus buying discounted properties. Yes, if you buy a new construction home for 240k, it tends to magically happen that the appraisal comes in around 240k.
But the reality is that if you're able to buy a property at a discount and add value in some way, you're going to get an appraisal that reflects the actual value.
I've been doing this for 10 years. I've had about 90 appraisals over that period and I haven't bought a single thing where my appraisal came in anywhere near my purchase price.
Now I've had some bad appraisals over the years. And when I get them, I typically ask for a review which almost always leads to no change. And then I pay for another one and have ALWAYS gotten the number on the second appraisal I thought it should come in around.
For the most part, though, they tend to come in right around the range you'd expect. I just refi'd 7 houses (6 out of my hard money loans) and the 7th a cash out refi.
Of the 7, 1 came in about 15k higher than I estimated. And one came in 12k lower. The rest were all right right about where I was expecting them to come in.
Keep in mind, 6 of the 7 were purchased within the last year. My purchase plus rehab was 70% or better than my estimated appraisal values.
Total estimated appraisal value of the 7 that I had given to the bank was: 1,035,000.
The actual appraisal value total ended up coming at at: 1,027,000.
The amount that I owed on those was 660,500 which was basically 100% of my purchase plus rehab on 6. And then the 7th was 100% of my purchase plus rehab minus about 12k that I had paid off over the last 4 years.
So that would be a clear example of where the appraisals were not coming in anywhere near my purchase price or even my purchase price plus the rehab. They were coming in at wherever the comps suggested they should be.
All good points. The problem I have is that I found a good property that would cash flow good and would not need any rehab. The problem is coming up with down payment money. I have the down payment but then I am stuck with no reserves. Thus, back to the appraisal coming in at the sales price.