Post Remodel Appraisals

8 Replies

Interested in purchasing a 2-bed,1-bath SFH in Louisville, KY, to rehab the attic to create an additional bathroom and bedroom. Property currently is valued at $200K-$225K, but similar 3-bed,2-bath SFH are $300K. I'm looking at obtaining a construction loan to fund the purchase and rehab, then convert it into a traditional mortgage. The construction loan portion of the financing will be interest-only. While talking with a loan officer about it, he suggested to get the after-rehab appraisal 1 year after the purchase, so the initial purchase won't be used as a comp. This doesn't make sense to me because the home is being fundamentally changed from 2-bed,1-bath 1,050 sqft to 3-bed,2-bath 1,340 sqft. Would an appraiser use my original purchase to lower my ARV?

@Joel Kleyer I have always used local commercial banks for these types of loans and they will loan on the appraised value after repair just like in new construction.

You need to shop different banks as they all have different appetites, comfort levels, loan products and rates.

ARV is, as you know, After Repair Value. This would include the changes/upgrades to the house.

Whether you do it yourself or pay/get someone to do it, I would make sure you were getting the ARV of a 3/2 at that location with the final characteristics your house will have. After all, the comps don't include the target property itself.

Originally posted by @Barry Pekin :

ARV is, as you know, After Repair Value. This would include the changes/upgrades to the house.

Whether you do it yourself or pay/get someone to do it, I would make sure you were getting the ARV of a 3/2 at that location with the final characteristics your house will have. After all, the comps don't include the target property itself.

Yeah I have a feeling the loan officer didn't fully understand what I was trying to do.  Talking to an appraiser would probably be more productive.

Do you plan on living in the home? If so, you may want to consider purchasing it using an FHA 203k loan. A 203k loan is "a type of home improvement loan program insured through the FHA that works by allowing homebuyers the ability to finance the purchase and costs of upgrades through one single mortgage." In other words, you'd be able to purchase the property and fund the rehab costs using an FHA insured loan.

The benefit of this approach is that it helps the borrower pay for the purchase price of the home, plus the cost of repairs. You would end up with one fixed-rate FHA loan, and a home that's in much better shape than when you found it. Hope this helps.

All the best,

Originally posted by @Raphael Collazo :

Do you plan on living in the home? If so, you may want to consider purchasing it using an FHA 203k loan. A 203k loan is "a type of home improvement loan program insured through the FHA that works by allowing homebuyers the ability to finance the purchase and costs of upgrades through one single mortgage." In other words, you'd be able to purchase the property and fund the rehab costs using an FHA insured loan.

The benefit of this approach is that it helps the borrower pay for the purchase price of the home, plus the cost of repairs. You would end up with one fixed-rate FHA loan, and a home that's in much better shape than when you found it. Hope this helps.

All the best,


Thanks for the suggestion, but I don't qualify for an FHA loan because I'm currently house hacking another property and it hasn't been 1 year yet.

@Joel Kleyer

I’ve done something similar to this. The appraiser simply asked what I payed for the property. The original purchase price didn’t limit my after rehab appraisal at all.

I bought one property for 80k, he asked what I thought it was worth and I said $250k, I gave him the highest comps I could find, and sure enough the appraisal came back at $253k.

As long as your rents can support the ROI you typically look for in a deal with the ARV you have in mind I wouldn't be too concerned about the appraisal. You can always challenge it as well. Every appraisal I've had, I never am surprised with the ARV that I get, the appraiser always depended more on me then I depended on him.

I am a retail and commercial lender in Louisville Joel and you are going to have a hard time finding a bank that will fund a purchase + repair for an investment property. This is one of the solution hard money lenders provide for investors. They typically fund both for up to 12 months but the deal has to be able to support the high carrying costs because you can't refi for 6 months and your LTV will be limited to 75% when you do.