4-Plex - Over-Appraised??

Question

I am curious what the impact could have of an over-appraisal on a 4-plex. Would Lenders see the 140k contract price and not require a down payment due to all the pre-established equity in the property at time of purchase?

Alternatively, is the only way to access this pre-establsihed equity a re-finance?  Seems silly to have to re-finance when you havent yet closed on the property - Are there legitimate ways of say financing 200k with cash-out at time of origin purchase or am I just thinking like a rookie?

Contract Price: 140k @ 20% down

Appraisal Value: 260k

Chris Mason · Answer

At the point of purchase, absolutely nothing changes. If you're buying a $300k property that appraises for $1,000,000, the lender will consider it a $300k property and require an appropriate down payment accordingly. But you can feel good about free equity and getting a good deal, which isn't nothing.

In six months, it'll be just based on appraisal, and you can put the equity to work at that point.

Andrew Johnson · Answer

@James McNight My (far more limited) knowledge is inline with what @Chris Mason is saying.  On a more practical level, where are you deriving the appraised value from?  The reason I'm asking is that sometimes it's from a real appraisal from the lender that's lender you the money.  In other cases, it's the buyers estimate, tax assessors value, estimate from the agent, what a turn-key company is telling you, a Zillow Zestimate, etc.  In short, the over-appraisal is more of an "opinion" than a true appraisal based on sold comps.  I'm not trying to second guess you but the word "appraisal" gets thrown around quite liberally in some of the BiggerPockets forums.

Chris Mason · Answer

I was about to suggest the old trick of jacking the rate up on the purchase mortgage (knowing it is a temporary interest rate) to get a lender credit that'll cover the refinance closing costs, however that tends not to work with smaller loan amounts because the lender credit is based on % of loan amount. :\ 2% of $500k goes a lot farther towards flat refi closing costs than 2% of $112k.

James McNight · Answer

@Chris Mason @Andrew Johnson - It is the Lenders ordered appraisal (they chose the appraiser and scheduled with my property manager).  They appraised for 260k and my contract is 140k.

It sounds like there's a solid 6 month waiting period before I am able to tap into this equity.  I guess I was just hoping I could save closing costs on 2 transactions (purchase , then refinance) to pull out this equity to re-invest in another property down payment etc.

I assume I will need to re-appraise after 6 months as well, just feels like a lot of extra time and fees to reach the same end hah (as I assume the same appraiser will come out to do the 2nd)

4-Plex - Over-Appraised??

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