BRRRR Possible with Little / No Rehab?

Question

I have a house under contract for $90k, it needs $10K (at most) rehab. $135k ARV with solid recent comps to back up.  $1100 rent easy.  No major changes just cosmetic updates.  I’m worried the appraiser won’t be in my corner being that the updates are minor.

Will they use the low sale price against me in the appraisal when I go to refinance since we haven’t changed anything major?  This is my first attempt at a Brrrr, I’ve been penalized because of this on construction loans before.  Hoping someone has some history with this?

Thanks!

Jason Wray · Answer

Michael,

Appraisers now a days nit pick everything and give very little credit/gross adjustments to TLC repairs.  If you are not adding square footage or doing major rehab work.  I seen hundreds of appraisals and over the last year I am seeing values come in shorter and shorter.  I see people add pools, rear deck/patios new kitchens, flooring etc and are surprised to see the appraiser using more inferior comparable sales.

Most appraisers today are so worried about getting flagged or having to explain gross adjustments so they avoid it if possible.  I am not trying to be negative and some people may have a different view but based on what I see on a daily basis ruins a lot investors cash recoupment attempts.  You may be better off just doing a cost efficient face lift with neutral paint upgrading basics and just rent.  I am basing that off of your price point meaning not putting to much money into a smaller home expecting a larger ARV.  Appraisers also look at when you purchased the property and how you paid.  So was it an REO short sale/distressed property.  They can and will use comps that reflect the same Arms Length or Non Arms length transactions.

Michael Anderson · Answer

I agree, I've had the same issues getting the correct appraisal on the last two I've done using construction loans but don't have any experience with a cash purchase Brrrr.  I found the deal through a letter I sent out, its a landlord who owns several properties and simply wants to offload some of them quick and easily so he's willing to give me a deal if I purchase multiple houses at once.  Thanks for the insight!