I am selling my first investment property here in the outer banks which is an insanely hot market right now.
For the same reason I bought my place there, the rents are very strong in the area and beachfront or close to beachfront property is all very cheap when compared to other areas nearby (think jersey shore, Long Island, etc.)
My house booked $162k in rental income for the upcoming season. I had two offers come in above my asking price within a couple days. One was at, the other was $25k higher and after we did best price one of the buyers went up $125k!
The unfortunate thing is that we actually went back and negotiated a lower price in exchange for a higher non-refundable deposit ($7500, so nominal amount).
We are most concerned about the appraisal as the market has gone out of control there and I actually bought the house last august (yes, crazy returns).
The problem is that apparently the appraisers don't take the rental income or NOI into effect with their appraisal. Which is completely stupid. It did $150k last year and $165k this year. The value of the property to an investor is going to clearly be based on its financial performance. With $97k in NOI, the $1.685mm purchase price we have actually isn't bad (6% cap rate 1 road literally right off the beach, 5 min walking with beach views). It still produces about $20k in cash flow after debt service at the new Buyer's purchase price.
So the question is how do you navigate this? I feel like we are going to get stuck with an unsaleable property because the appraisals are all going to come back too low. Market is very hot but looking at my house, which is 11BR and almost 7k sq ft, there aren’t as many comps and I’m not on the oceanfront. The comps are actually quite bad as the prior owner and I have put a ton of renovations into it to make it really high quality (particularly compared to other houses that get beat up from the rental season and/or run down from the ocean air and wind).
So are we just stuck with this property likely unless we want to sell for a much smaller gain? Insane that someone in willing to buy it for more and we’ve already come down because we know we are way off on the appraisal.
Also, now is the time to sell before the rental season starts, so it’s likely that we’ll chase this issue down, find out there’s a problem and I’ll miss the window to sell it big. Who knows what next year brings with Covid and everything across the board changing.
I guess the TL;DR is how do we convince an appraiser to factor in rents when appraising the property (particularly when the entire value of market in the area is based on rental performance).