Investor · Marysville, OH · Member since 2017 · 39 posts · 12 votes
Hi all,
New investor here (6 months) now under contract on a property with two separate structures; one a SFH and one 3-plex in a B area with solid cash flow on the deal. They share a single parcel and I have found the county records indicate a commercial zoning. The first identified lender has stepped back from the deal and a couple of other lenders appear a bit uncertain.
What are the challenges? I am guessing the appraisal may be challenging due to lack of comparable properties in the area. Other issues?
Does such a situation impact ability to sell the property in the future?
Investor · Marysville, OH · Member since 2017 · 39 posts · 12 votes
9y
As it turns out, the city confirmed to the lender that this is not a commercial zoned property, however as I feared, the appraisal came back today extremely low.....about 75% of the contract sell price. There indeed were no similar comps and so the appraisal was based on nearby duplexes and triplexes with only about a $10k increase allotted for each additional door/unit above the comp properties. For example, comp sale #1 is a duplex of 2,000 sq feet as compared to the 3,000 sq feet subject 4-unit property....and only $22k made to compensate for this disparity.....seems low to me ($22/sq ft).
Anyone have a similar experience or advice?
I suggested the broker take the appraisal back to the seller and attempt to renegotiate to the appraised value.
This property is in one of the nicer communities about 20 miles outside of Cleveland Ohio.
Investor · Parma, OH · Member since 2016 · 101 posts · 46 votes
9y
Are you looking at a traditional bank or a private/portfolio type of lender?
I can tell you that in my personal opinion if you are new (not an insult, I'm also new and only have a couple properties) and an appraisal comes back very low, especially only 75% of the contract price, I would run from that deal if I could.
Appraisers can always error but generally speaking, that person makes a living by knowing what a house is worth. It may just be that it is not actually a deal. I think the goal would be for the contract price to be 75% of the appraisal, not the other way around.
Unless you KNOW that it's a deal from a cash flow, location, AND property value perspective, I'd back out.
Investor · Marysville, OH · Member since 2017 · 39 posts · 12 votes
9y
Thanks @Nick Ferguson for your inputs, that is exactly the tact that I am taking now. We have gone back to the seller with the appraisal and indicated the deal is not gonna happen at the current contract price. Meanwhile the broker is putting together an additional list of comps which may or may not substantiate the lender challenging the appraisal.
The funding on this is via a conventional bank lender. I am not going to proceed without valid comps indicating the contract price is approximately 75% of real market value.
Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
9y
I once looked at a very similar property (in fact might be the exact same one, looking at your description!) but the numbers did not pencil out. I did not even make an offer, because by the time I factored in the costs of renovating the property to my standards, and with the lack of comps, it was unlikely that the lender would agree to fund the deal.
I am not sure how you will get the seller to go from a contract price 25% above appraisal to 25% below.... Unless they are positively desperate to sell, I guess. Good luck in any case!
Investor · Marysville, OH · Member since 2017 · 39 posts · 12 votes
9y
Appreciate the feedback @Account Closed, this property is very near the town center area and may very well be the one you have seen yourself....now waiting to find out just how desperate the seller may be.