Question about DSCR, why is my appraisal so much lower than my rent collection

Cleveland, Ohio

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Question about DSCR, why is my appraisal so much lower than my rent collection

Alex FrantzisPro Member

Investor · Member since 2025 · 3 posts · 13 votes

So I closed on a 4 unit mutli back in december that was 75% occupied, on MTM and well below market. I bought for 425k in one of the best neighborhoods in Cleveland, great rental demand, close to city center and walking distance to everything. I put in about 90k in renovations and upgrades and now fully occupied (last lease is being signed today) collecting $7200/month in rents, with all tenants now on 12 month leases.

I am in the process of refinancing under DSCR but the lender's appraser came back at $575k valuation, as I am looking to cash out on this one.

My question, is it common for an appraisal to come in that low, especially with 7200 in rents a month coming in?

Thanks for any guidance, just wanted to see if it was worth shopping around or just closing it at 575k valuation and moving on.

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Matthew CrivelliBusiness Member

Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes

Appraisal is not based on cap rate. They are using sale comps. If it was a 5+ unit building cap rate would come into play.

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Tyler MccleanPro Member
Investor · Nassau County, NY · Member since 2022 · 99 posts · 26 votes
4mo
Definitely worth shopping around. It doesn't hurt. I just messaged you.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4mo
4 units and less are appraised by comps, not rent. If you cut your rent in half the appraisal should come back identical. (Though some builders do both a comp valuation and an income valuation, and then they use the lower of the two. Meaning if they are using comps you could double the rent and the appraisal would remain the same.) You can certainly ask them if they used comp or income or both for their appraisal and what both numbers were.
If the building was worth $485k when you paid $425k then you got 100% of your improvements in added value, that’s rare enough, but the appraisal is dead on.
This is like the people who buy a $400k home surrounded by 50 other identical $400k homes. Then they say because they have a STR bringing in $100k their home with worth $700k. The business might be worth that, but the home isn't.
Obviously they are using their standards to lend money. They might be tighter or looser than the next person you try. Why not try 3 or 5 more lenders and see if they all group around the same value or someone is more desperate for your business and offers more. Good luck.
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4mo
As mentioned, on a one to four unit property, the appraisal is based on comps, and rental income is used to also determine the loan amount to make sure there is the debt service coverage. Also, please note that when people make a comment that their lender's appraisal, as a lender who used to originate DSCR loans, we have no control over the appraisal. We engage a third-party appraisal management company who finds the appraiser and provides a report. In some instances, we'll get a desktop opinion to confirm the appraisal is valid.

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Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 522 votes
4mo
The appraisal can come in lower than expected. The lender or mortgage broker works with an appraisal management company (AMC) so they don't control the appraiser and what the appraisal comes back with. The appraisal for the value of the property is based on the most recent, most similar and geographically closest sales comps. You can try another mortgage broker or lender but there's no guarantee the next appraiser sent out by an AMC will return a higher value for the property.
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Matthew CrivelliBusiness Member
Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
4mo
Appraisal is not based on cap rate. They are using sale comps. If it was a 5+ unit building cap rate would come into play.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4mo
Quote from @Alex Frantzis:

So I closed on a 4 unit mutli back in december that was 75% occupied, on MTM and well below market. I bought for 425k in one of the best neighborhoods in Cleveland, great rental demand, close to city center and walking distance to everything. I put in about 90k in renovations and upgrades and now fully occupied (last lease is being signed today) collecting $7200/month in rents, with all tenants now on 12 month leases.
I am in the process of refinancing under DSCR but the lender's appraser came back at $575k valuation, as I am looking to cash out on this one.

My question, is it common for an appraisal to come in that low, especially with 7200 in rents a month coming in?

Thanks for any guidance, just wanted to see if it was worth shopping around or just closing it at 575k valuation and moving on.

Hey Alex,

On a traditional 1-4 Unit DSCR loan, the appraiser is using the sales comparison approach for value. They will look at previous sales within the last year, similar to your property and provide a market value.

The appraiser mentions the Income Approach, however it does not impact the lender's final value, since these loans are purely based on sales comparison approach.

Once you move on to 5+ unit multi family, most lenders and appraisers will use income approach for value.
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Stephanie MedellinBusiness Member
Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
4mo
You can apply with another lender and pay for another appraisal, but you won't be able to shop around for an appraisal on its own. A new lender won't really have any more control over the appraiser than your current lender.
Your best option is to dispute the appraisal with stronger comps and sales data. As others mentioned, it won't be based on the rental income, but closed sales prices of other similar properties. You typically only have one chance to dispute, so you'll want to find the very best and most similar comps. They must have sold on or before the effective date of the appraisal, and ideally be closer in size, proximity, condition than the comps used. You will need to work with your loan officer to submit the dispute.
If there truly aren't better comps out there, then it's probably best to close with that value and move on.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
4mo
Quote from @Alex Frantzis:

So I closed on a 4 unit mutli back in december that was 75% occupied, on MTM and well below market. I bought for 425k in one of the best neighborhoods in Cleveland, great rental demand, close to city center and walking distance to everything. I put in about 90k in renovations and upgrades and now fully occupied (last lease is being signed today) collecting $7200/month in rents, with all tenants now on 12 month leases.
I am in the process of refinancing under DSCR but the lender's appraser came back at $575k valuation, as I am looking to cash out on this one.

My question, is it common for an appraisal to come in that low, especially with 7200 in rents a month coming in?

Thanks for any guidance, just wanted to see if it was worth shopping around or just closing it at 575k valuation and moving on.

What comps did you pull BEFORE the appraisal?
What comps are available NOW to refute the $575k amount?
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Valentin Lopez
Investor · Florida, United States · Member since 2026 · 8 posts · 5 votes
4mo
The technical answer's already here — on 1-4 units it's the sales-comparison approach, so your $7,200/mo doesn't move the appraisal (income only drives value at 5+ units). So instead, the part nobody's said yet: your deal is actually fine.

You're all-in around $515K ($425K + $90K) and it came back at $575K — you got your full rehab back plus a little, which is a real BRRRR result; most people leave money stuck in the deal. And the scoreboard here isn't the valuation, it's the cash-out. At a 75% cash-out LTV on $575K that's roughly $431K back — against your ~$515K all-in, you'd leave about $84K in. Recovering 80%+ of your capital on a fully-leased, cash-flowing building in a strong Cleveland pocket is a win, not a miss.

On shop-around vs. close: a second appraisal runs ~$500–800 plus time, and the next AMC sends someone who pulls the same MLS comps and usually lands in the same range. The higher-leverage move is to dispute the one you have — but only if you can hand the lender genuinely better comps (closer in size, proximity, and condition, sold on or before the effective date). Two things worth checking in the report first: did the appraiser actually credit the $90K of work and use post-reno condition, and did they pull from your specific pocket or a weaker stretch nearby? If the comps are fair, $575K is probably real — I'd take the capital and move to the next one.

For the next deal: underwrite the refi appraisal on comps up front, the cold way the lender will, and assume it lands a little under your hope. Then the number's something you planned for instead of a surprise at the closing table.
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Vijay FriedmanBusiness Member
Miami, FL · Member since 2026 · 766 posts · 124 votes
4mo
Quote from @Alex Frantzis:

So I closed on a 4 unit mutli back in december that was 75% occupied, on MTM and well below market. I bought for 425k in one of the best neighborhoods in Cleveland, great rental demand, close to city center and walking distance to everything. I put in about 90k in renovations and upgrades and now fully occupied (last lease is being signed today) collecting $7200/month in rents, with all tenants now on 12 month leases.
I am in the process of refinancing under DSCR but the lender's appraser came back at $575k valuation, as I am looking to cash out on this one.

My question, is it common for an appraisal to come in that low, especially with 7200 in rents a month coming in?

Thanks for any guidance, just wanted to see if it was worth shopping around or just closing it at 575k valuation and moving on.

@Alex Frantzis
Congrats on getting the property stabilized—that's a big milestone. A lower appraisal than expected can happen even with strong rents since appraisals rely heavily on comparable sales, not rental income alone. If you think the value isn't supported by the market, it's reasonable to get a second opinion from another lender before deciding to move forward. Hope you're able to maximize the refinance.
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Eduardo Cavasotti
Investor · Charleston, SC · Member since 2018 · 198 posts · 87 votes
4mo
For a 1 to 4 unit BRRR, rent solves the DSCR test, not the valuation test.

I would split the decision into 3 numbers: appraised value, cash left in the deal, and cash flow after the refi.

If the appraisal leaves $84K trapped but the property cash flows well, the question is whether that trapped capital slows the next acquisition enough to justify another appraisal fight.
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Malik Shalmiyev
Member since 2026 · 8 posts · 0 votes
4mo
Everyone's right that 1–4 units are valued on sales comps, not your rents — so I'll skip that and go straight to the part that actually decides your outcome: whether an ROV (reconsideration of value) is worth your one shot.
You typically get one dispute, so treat it like a case file, not a complaint. What actually moves an appraiser:
- 3 closed sales (not actives or pendings) that are genuinely more similar than the ones they used — closer in unit count, square footage, condition, and proximity — and that closed on or before the effective date of your appraisal.
- Proof of your $90K scope. A line-item rehab summary plus before/after photos so they credit post-reno condition, not the 75%-occupied shell they may have anchored to.
- A specific factual error to point at (wrong GLA, wrong condition rating, a comp pulled from a weaker pocket than yours). "It feels low" gets rejected; "comp 2 is 4 blocks into a different school zone and sold pre-renovation" gets a second look.
If you genuinely can't find three better closed comps, the number is probably real — and at ~$515K all-in appraising at $575K, you already pulled your rehab back out, which most people don't. In that case take the capital at 70–75% LTV and roll it into the next one rather than paying for a second appraisal that'll likely land in the same range.
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Brittney McIntire
Lender · Los Angeles, CA · Member since 2022 · 36 posts · 15 votes
3mo
For 1-4 unit properties, appraisers are required to use Fannie Mae Form 1025 — the Small Residential Income Property Appraisal Report. That form leans heavily on the sales comparison approach (comps of similar sales nearby). Rather than pay for another appraisal you could do a dispute on the current one if you have strong comps to support a higher value. If you have strong comps to show the appraiser that are not already on the current report they can re-evalute. Often you would get these comps from your agent or you can sometimes find the info online via zillow/refin etc. If the appraiser does not budge and you still think their opinion of value is inaccurate after disputing then I would suggest ordering another appraisal through a different AMC. Did the appraiser ask you for the scope of work of improvements you made?
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Jenna Fawley
Lender · Pickerington, OH · Member since 2026 · 49 posts · 39 votes
3mo
This is all really helpful insight and it still sounds like a strong project overall, getting it fully occupied at $7,200/month is a big win. Like others mentioned, the rent roll is going to matter more for the DSCR side than the actual appraised value on a 1–4 unit property. The value is still going to lean heavily on closed sales comps, so sometimes the rent and the appraisal just don’t line up the way you’d expect. I’d probably look closely at the comps they used and see if there are any stronger ones that support a reconsideration of value. If not, it may still make sense to close and move on, especially if the property cash flows well after the refi. Either way, sounds like you did a great job stabilizing it.
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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
3mo
They will value it based on comparables. Did you look at comps when you were buying?
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3mo
Some additional advice, because there's a lot of AI-generated content here: do not waste $500+ on another appraisal. Review it and see if the comps are accurate, and again, it cannot be off of rent. It's based off of unit square footage and other similar properties.

Before taking some of the advice about getting additional appraisals and spending additional money, first review the existing one and understand that again, the rental income on anything four units or less is irrelevant to the appraised value. Where it comes into play is to make sure that it covers the mortgage payment.
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Adrian Colendres
Member since 2026 · 1 post · 0 votes
3mo
That is a frustrating situation, but unfortunately very common. For 1-4 unit properties, appraisers are bound to the sales comparison approach, so that fantastic $7,200/month rent roll doesn't directly bump up the valuation like it would on a 5+ unit commercial building. However, not all lenders or AMCs (Appraisal Management Companies) look at the comps exactly the same way. My Senior Advisor handles high-volume DSCR cash-outs, and I will shoot you a quick message right now to see if it makes sense to run this past our direct lending desk for a second opinion!
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Irv ArreolaPro Member
Lender · Los Angeles CA · Member since 2026 · 57 posts · 9 votes
3mo
Alex ,
the frustration makes sense, but the appraisal is behaving as designed. On 1–4 unit properties, appraisers value off sales comps, not income. Your $7,200/mo only shows up on the 1007 rent schedule, which drives your DSCR qualification and max LTV
it doesn't move the value number. Income-based valuation doesn't kick in until 5+ units, where cap rates apply.

Two practical thoughts:
1. If you think comps were missed, ask your lender for a reconsideration of value (ROV) with 2–3 specific renovated comps , that's the only lever that actually moves the number. Shopping lenders usually just gets you a second appraisal fee for a similar result.
2. Check whether $575k actually blocks your goal. At 75% LTV that's ~$431k of loan, against your ~$515k all-in basis, run whether the cash-out you get is enough before spending time fighting the value. With those rents, your DSCR should price well, so the value is more likely your constraint than the ratio.

I originate DSCR loans and wrote up how the rent roll vs. appraisal disconnect works on refis just this week
happy to share if useful.
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Irv ArreolaPro Member
Lender · Los Angeles CA · Member since 2026 · 57 posts · 9 votes
3d
Congrats on the turnaround. Going from partly vacant and month to month to fully leased on 12 month terms is real work.
On 1 to 4 units the appraiser values off sold comps, and the rent mostly matters for the coverage ratio, not the value. Before paying for a second appraisal, go through the comps they used. If there are closed sales that are more similar and they got missed, a reconsideration of value with those comps is your best shot.
Even at $575k you created a lot of value from where you bought it.
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