Almost Lost $24,000 on BRRRR, Instead Made $8,000
My numbers showed a conservative ARV of 3/1 rancher in Richmond, VA at $135,000. All-in costs including repairs, title, legal, lender fees, etc. was $108,000. I developed a relationship with a new bank with great portfolio products and was excited to work with them.
Renovation was completed 2 weeks after closing. Refi was underway with the appraisal 1 week later. Appraisal came back at $105,000!!! The bank sent a note saying they would only refinance 80% of $105,000. I was slated to lose $24,000 on an expected breakeven BRRRR.
After a small heart attack, I reached out to a few RE professionals in the area and the general response was "That sucks!" when hoping for a solution. I remembered a few situations on BP podcasts where guests spoke about respectfully understanding the appraiser's methods, communicating your misunderstanding, and presenting appropriate data to support a revaluation. Solely because of that podcast or two, I did just that.
Appraiser was willing to revaluate and came back a week later with an appraised value of $145,000. The closing date is set, and I'll be paid $8,000 after paying off the private money and all other costs and have 20% equity in the home. Mortgage will be ~$800/month and rent is $1250 with a two year term already in place.
I write this because I would have taken a huge loss if I didn't know any better. There was no "option" to contest the appraisal. I might have left the bank completely, which had a great product and people. Luckily, the numbers were there and things worked out alright with an increase of net worth of around $35,000 in about a month with $0 of my own money invested on one SFH. Thanks BP!