Appraisals for refinances
Hi,
I am a small time Mom and Pop real estate investor in Sacramento, CA. My partner and I have three SFH rentals and we're doing our second flip. I have been diligently listening to the BP real eatate podcasts lately and I want to do more BRRR's. I have a question about appraisals. Every time we have appraised for a refinance, the appraisers in our area are very, very, conservative and pull low comps and the homes get appraised below market value even when I ask them to redo it, and I can't afford to keep paying for more and more appraisals without knowing what the end result will be. How can I properly do the BRRR method is after rehabbing the properties, the appraisal value won't let me pull my equity out? This is the issue we are encountering and so I never have cash down payment for another investment because my money is tied up in the properties, so what I do is I pull money out of a HELOC for the down payment but then it's hard to have cash flow when the rent will barely covers the mortgage plus the HELOC payment with these interest rate rates. Also, it's just not realistic to buy cosmetic fixers for under about $350,000-$400,000 in my area, and again with the interest rates and the appraisals coming in low it's a huge barrier.
Most Popular Reply
Janee — I think the big issue is that BRRRR only works if the refinance actually gives you enough capital back to keep moving.
If Sacramento appraisals consistently come in conservative, I'd stop underwriting to the ARV you hope for and start underwriting to the appraisal you're likely to get.
If you think a finished property is worth $500K, run the deal at $450K–$460K and see if it still works. If too much cash stays trapped, it may still be a good rental — just not a good BRRRR.
The HELOC can bridge that gap, but if the rental barely carries the mortgage plus the HELOC, you're basically replacing trapped equity with expensive debt.
Before your next one, I’d also talk to a few investor-focused lenders and understand their appraisal/reconsideration process before you buy.
And now if you really want to party, send me the address of the last house that appraised low, what you thought it was worth, and what the appraisal came in at.
That would be interesting to tear apart.