Duplex Appraisal Question

[Derek Meyer]

My wife and I just bought our first duplex. With our local market we got into a bidding war above asking price but I bet that others are not considering the recent hikes in rents in my area.

Purchase price: 283,000

Rent: $1,350 per unit

Appraisal: $270,000

The duplex was vacant at the time of the appraisal and the estimated 1,075 per unit and came to the appraisal amount of $270k by multiplying the estimated rent by 125 (average Gross Rent Multiplier).

A) since I have successfully filled both sides of the duplex with tenant paying $1,350, is there anyway I can capitalize on the presumed equity this could add? Actual rent of $2,700 multiplier by 125 GRM would have given an appraised value of $337,500. Or is this largely irrelevant since it is 1-4 unit property?

[Russell Brazil]

2 units is valued primarily by comparable sales. 

[Andrew Postell]

@Derek Meyer based on the numbers you presented it would be highly unlikely. What it sounds like you are asking is can you take cash out from the property if you increased the value enough by increasing the rents. Even if a commercial loan would give you a higher value then keep in mind that most commercial loans will only provide a 70% LTV for a cash out loan. You would have to increase the value significantly to make that type of a loan possible.

[Derek Meyer]

@Andrew Postell but still the same calculation method of 125 x rent we would have a 337,500 appraised value. 70% of that figure would give a maximum of $236,000. My current mortgage is $202,000.

Just trying to see if there’s anything I can do within my own finances to expedite the next property.

[Andrew Postell]

@Derek Meyer yup, so once you pay all of those closing costs again.....and have a higher rate on the commercial loan...you will see how unattractive it is.  But certainly call around.  Maybe you'll get lucky.