BRRRR 4plex Income Based Appraisal loophole?

Question

Hey all,

A quick background - I purchased a 4 unit property in the Oakland, CA area that was distressed and severely under rent. I was able to renovate the four units and get the rents over 2x what they were before so that cash flow per month is around $2.4k free and clear total. Rents went from $3,400 to $7,450. I'm getting ready to refinance the property and I'm learning that income based appraisals are rare for properties like this. And if I don't get an income based appraisal the value will be significantly less - close to $400,000 less property value.

On the county assessor's website, the property is ACTUALLY listed as a 5 unit property and the utility companies treat it as such (I.E. Waste management forced me to pay for the 5 unit property rates even though there are only 4 finished units.) I financed the original loan as a 4 unit however now I'd like to switch to take advantage of the 5 unit income based approach. Has anyone run into a situation like this before?

TL:DR First loan was 4 units however county assessor claims it is 5 units. Can I claim 5 units on the cash out refinance?

This may go nowhere however it's an interesting anecdote and something I am trying to solve.

Stephanie P. · Answer

@Taylor Matthews

If there are 4 units, it will be appraised as a 4 unit.  Just because the assessor's office is hitting you for a higher assessment doesn't make it a 5 unit.

Lee Ripma · Answer

@Taylor Matthews

A common misconception, you can get a commercial loan on anything, even a SFH. You just can't get a RES loan over 4 units. I work with a local bank for them.

Oleg Shalumov · Answer

@Taylor Matthews 5 units would make it commercial property and it will evaluated based on income.

I would think the property would value more as commercial, but I am not familiar with you local area and you would be the best person to compare value of 4-plex vs 5-plex.

I would see if it is possible to add another unit and make it the 5-plex And how much it would cost.

Travis Hutchinson · Answer

@Taylor Matthews would love an update on what your experience was like and what the outcome of this was :)

Julie Coleman · Answer

If your title document says it is 4 units, you have 4 meters on the property, and 4 addresses, yet according to the tax accessory you have 5 units, you may be overpaying taxes for your units. Check with the tax assessor to see if the 5th unit can be removed. Then listen to the experts above. Great advice so far!

Justin Kane · Answer

its something you would need to fight and prove, if its physically 4 just go have it corrected and also fight them on the taxable.. if you bought it with the past year for 200k but they appraising it based on 300k then you can have them lower it to the number you bought it for etc.

Bill B. · Answer

I agree with russel. I’ve seen quite a few converted fourplexes that have one unit twice as large. The financing alone can make it a better deal.

Russell Brazil · Answer

I dont know your market....but in my market...and many others....4 unit properties are more valuable than 5 units. Many people will actually take a 5 unit, combine 2 units to make it a 4 and thus increase the value.

Taylor Matthews · Answer

@Lee Ripma I'd love to hear a bit more on how you're getting the commercial loan on the 4plex. Are you just using a special loan officer that you found? I was under the impression that you needed 5+ units to get a commercial loan.

Thanks!

Lee Ripma · Answer

@Curt Shenenberger

No debt to income, no pay stubs, they really make you give them a ton of stuff and jump through hoops to get a RES loan. They also don’t understand major value add. I’m refinancing a 4plex that I’m in all cash now, I just send my banker the numbers on the deal and a personal financial statement, he gives me a loan.

BRRRR 4plex Income Based Appraisal loophole?

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