Refinance Challenge on Buy and Hold Purchased in 2022

[Jeremy I.]

I bought a rental in 2022 through owner financing and used the realtors CMA to value the house. The note is due in a month and I've been trying to refinance the house and the appraisal came back approximately $150,000 lower than the purchase price of the house, which is causing me to have to bring approximately $65,000 to close. I'm trying to determine what my options are, and how to proceed. I've thought about hiring a lawyer to renegotiate with the prior owner, approaching a wholesaler, or allowing the house to go into foreclosure. All bad options. Any help will be greatly appreciated.

[Patrick Roberts]

The damage is done. As the old saying goes, "you make your money when you buy." Not being harsh, just pointing out the reality. 

I doubt that selling will help much, as it sounds like this would be a short sale and the existing note holder would have to agree to accepting the short payoff. Does the prior owner still hold the note? If so, you may be able to negotiate an extension on the current loan. 

I would look into the long term viability of the property. What are the numbers for it as a rental property? Even if you overpaid, if you can rent it for long enough, tenants will eventually pay for the property for you. From here, it's a matter of estimating cashflows/financial performance and then determining whether the better course is to take the loss on the chin now vs hold the property and earn your way out of it over a period of time. 

I wouldnt give any weight to what you've already spent on the property. That part is a sunk cost. All that matters now is: does it make more sense to walk away as is, or to invest another $65,000 given what you can expect to earn going forward, considering the opportunity cost on that $65k.