DO I OR DONT I? Duplex appraisal came in low but the numbers work

11 Replies

Hey everyone,

I am in a bit of a pickle as to whether or not to go through with a duplex in Clarksville, TN. A quick background on the prop; 1600 sq ft duplex in a nice area getting me 8% ROI after all expenses. I would have to put some money into it, but the main issue is that it appraised for 15k lower than what we were under contract at.

Of course I don't want to over pay for anything. But it's already been renovated in many areas and the numbers work. I was fairly conservative with the math and it still would get me 8% at current rents.

I was hoping to see what all your thoughts were as to if this is still a good idea or not? 

Thanks!

Clark Henderson

@LaRussa Henderson it’s hard to say unless you note what you are paying. Appraisals are all over the place right now. I would go back to the seller and ask them if they have any room. A lot of things are selling at the top of the market currently, but it doesn’t mean that this is the actual top just means the current market. I like to look at what new construction costs and compare the two a little bit and then also the simple fact that your number still work even with a lower appraisal would probably be a good sign to move forward. The Clarkesville market has hardly anything for sale to even begin with much Less multi family.

I know for a Single family the appraisers would use similar comparables. But for a duplex, what they use to compare? I just got my sfh appraises by va and it came in at $147 and I listed at $138 thinking that might be high. Its in Clarksville tn 37042.

Originally posted by @Sang Yi :

I know for a Single family the appraisers would use similar comparables. But for a duplex, what they use to compare? I just got my sfh appraises by va and it came in at $147 and I listed at $138 thinking that might be high. Its in Clarksville tn 37042.

Yep they used similar comps in the area as well 

Originally posted by @Zachary Beach :

@LaRussa Henderson 8% sounds low are you buying it cash? If it's cash and you don't want financing that's probably ok but 8% with financing is negative cashflow. Unless you mean 8% CoC return rather than ROI.

@Zachary Beach Yep sorry my mistake, it would be 8% Coc Return

@LaRussa Henderson

I have noticed appraisals are all over the place. It is also harder to find comparables on multifamily.

Also, rents have gone up considerably in Cville. Did you have a PM give you an estimate of rents? Does it already have leased tenants?

Sometimes this is helpful to appraiser if there are already leases in place.

I have a chance at purchasing a multifamily recently. But, seller had just released all tenants on new leases well below market.

I am currently only renting month to month and have raised rents without long term leases.

Just a few things there to think about.

@LaRussa Henderson we just went through an appraisal gap situation like this on a pair of duplexes in Detroit area, so i feel your pain! It's tough to get a low appraisal when you know the numbers work well even on the higher purchase price. Like @Rylan Kean mentioned, step 1 is to try to use the low appraisal as leverage to get the seller to drop the price. Unless they had other competing cash offers, they should be motivated to work with you, knowing that if the deal falls through, the next buyer will likely be in the same exact situation with a low appraisal. 

If you're willing to spare the additional $15k to make up the difference, you'll essentially have a higher down payment on the loan which means a lower mortgage and better cash flow. This is just a factor of your personal goals. 

Ultimately, we decided to walk from our deal because the gap was just too high and the seller wasn't willing to budge. We had the extra money to put in, but because we're just getting started, we didn't want to tie up too much cash in a single deal and thus prevent ourselves from looking for the next one and scaling quicker. 

Good luck!