4 unit or less will be considered residential. They'll look at comps in the area for establishing value. 5 or more units will most likely be considered commercial. Value on Cap-rates then.
Can you get an appraiser to consider STR income on a multi-family for a cash-out refi? Assuming they use the income approach, rather than comps.
I'm guessing the answer is "it depends," but I was hoping some of you have tried it and might have tips and tricks to share.
Are banks going to be leery of the high STR returns, compared to LTR and lending against that GRM value?
You can, but it won't work with conventional financing. You'd have to go with a DSCR loan or asset based loan. This is not bank financing and they still won't use the income approach, but if they use short term comps, it will give an accurate picture of income. Not all DSCR lenders/brokers will do these, but some do.
I have a quadplex that I've been operating as STR for the last 2 years. I tried to sell it last year and the appraisal came in way lower than I was expecting. The banks will only appraise it based on comps, or resale value as @Paul Sandhu stated.
Even though it is a cash producing asset and should be valued as such, any multi family that is 4 units or less is considered residential by the banks and will be appraised based on comps/resale value.
In my case, my appraisal value was dragged down because all the nearby quads are of lower quality than mine. Nothing you can do about it. But this is just specific to my area. Perhaps your area has some nicer quality 4 unit multifamilies.
A multifamily has to be 5 units or more for a bank to appraise it based on revenues.
In my experience banks are not leary of the higher income that a STR produces. I financed my STR's via a commercial loan as @stephanie p. described.
Completed 6+ STR cash out refis, 3 cities, 2 states. As folks mention here, they use comps just as in any residential appraisal setting. The challenge has been, in fast moving (high appreciation) locales, the appraisers have trouble coming up with current (actual) FMV. Often appraisals are low. One example was Palm Springs, CA. Appraisal came at $680,000. My realtors have that house valued at $900k to $1M+. Have been able to get 75% LTV. On the bright side the mortgage is smaller, so it's an easy decision...the tax-free cash comes in handy for doing more deals & shoring up reserves.