Multi family financing/appraisal help!

12 Replies

Hi everyone, Before the story I’ll cut to the chase (and you can read the story if you want)... Anyone have experience improving the MFR appraisal to maybe bump the value some? I have a small multi family (26 units) in southeast Michigan that we purchased from a burned out owner almost two years ago. We have raised the income by over 10% and slashed the operational expenses. The NOI looks strong, and if we use the same cap rate we purchased at it pencils out to a value of over 1.5M. I have been talking to a Fannie Mae lending partner and was told the area only supports 75%LTV and with the minimum loan amount, would need to appraise for over 1.33M to qualify. This seems like a slam dunk, but the highest recent per unit sales in the area are about $50k, which puts us at 1.3M and maybe not worth paying for appraisal...wha wha wha So...anyone have experience improving the MFR appraisal to maybe bump our value some? Thanks a bunch! Bruce

@Bruce Scannell 75% LTV is pretty standard. Increasing the NOI is the way to increase value. You may just need to wait a little longer or use another lender. Fannie Mae has the $1M minimum, but there are a lot of other lenders out there that do not have that rule. Shop around for another lender or wait until you can show a higher NOI to increase the value.

Thanks @Anthony Dooley . My current financing isn't terrible, but the amortization is short, and I'm looking to extend that with Fannie Mae. Our NOI is already high enough to be more the 1.3M, but the brokers I'm using who are approved by Fannie Mae/Freddie Mac say that the appraisal will come up shorter due to recent sales. Is it true that poorly run properties in the same market can still bring down the value of mine, which is run better from a NOI point of view? If so, this is somewhat discouraging, and aligns itself with the comparable philosophy like single family homes. Thanks!

@Bruce Scannell a broker isn't an appraiser. Poorly run properties near you can affect the cap rate used to calculate your value even though your NOI is higher. 1% difference in cap makes a lot of difference. Be willing to pay for the appraisal even if it comes up short, or just wait a bit longer.

First I would call another Freddie Mac lender.  I have a lender that will do $1M appraised value.

Second appraisal should be based on income at a cap rate. If you know a commercial agent that can find sales comps in your area at a lower cap rate you should be able to show appraiser the value. Look for similar property with as low of a cap rate at sale as possible. Then provide those to the appraiser. I find commercial appraisers are much more flexible than residential, and love you to do the work for them. 

Appraisers shouldn't just comp of price per unit there are more variables than that. If an appraisal was 50k/ unit what did the P&L say that is what should give the appraiser the final value. 

The appraisal should be based on the Income Approach with the Sales Approach given secondary emphasis. It can be possible for the appraiser to come in at $1.5M from the Income Capitalization approach and $1.3M from the Sales Comparison Approach. Also, I would see what recent Cap Rate comps in the area show, if you can find the data. The appraiser might be able to use a lower cap rate based on Comparable Sales in the area that have financial data. Furthermore, if the appraiser 's average is $50K per unit, his or her adjustments (Time,Condition,Location,Size) can easily push the adjusted Sale Comparison average above $55K per unit $1,430,000 Closer to your concluded Income Value of $1.5M.

Originally posted by @Bruce Scannell :

Thanks @Anthony Dooley . You're right, thanks for the advice. I think I'll wait till the end of summer and order an appraisal myself.

 I wouldn't order an appraisal unless it's done through a lender you intend to use.  Otherwise, it's just for you to look at and maybe paper your walls.  No lenders will use an appraisal you purchased on your own.

Best of luck

Stephanie

very valid @Stephanie P. . I think I’ll just try and call a couple more lenders then. I wonder why an agent for the lender would be overly conservative but instead be the opposite to hook the client. Do you know how the agents typically get paid? That might shed some like on their potential lack of motivation. Thanks 

Originally posted by @Bruce Scannell :

very valid @Stephanie Potter. I think I’ll just try and call a couple more lenders then. I wonder why an agent for the lender would be overly conservative but instead be the opposite to hook the client. Do you know how the agents typically get paid? That might shed some like on their potential lack of motivation. Thanks 

 Loan officers or originators, whatever you want to call them, are generally paid on commission.  I don't know why they would be unmotivated.  I can understand conservative; maybe they want to be perceived as the guy/gal who want to under promise and over deliver.  Too often, the ones that "hook the client" nowadays get bad Yelp reviews:)  You can call Tom at Capital Bank in Annapolis. They do all 50 states and he'll give you an answer.  Not always the answer you want, but at least it's an answer.  PM me for contact information.