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
Your rehabs aren't the problem. Your exit lender is.
I've done investment lending for 15+ years, and this isn't three bad appraisers in a row, it's the retail conventional channel working as designed. When you refi through Rocket or the big banks, the appraisal comes through an AMC, and those appraisers are graded on how defensible their number is, not how accurate. The one you talked to told you the truth: they anchor to purchase price and won't come in high because the bank's review desk will kick it back. They have no incentive to fight for your value.
Two things compound it. Inside 12 months of purchase, both the appraiser and the lender lean on your recent sale, so your off-market "got it cheap" price becomes the ceiling on your ARV. And big lots or rare homes don't show up on the form, if comparable properties rarely trade, there's nothing to support the premium even though the market would pay it.
Here's the part I'd push back on. You've decided the issue is the appraisers. It's really the channel, and the channel is what you control.
Stop refinancing value-add rentals through retail conventional. A DSCR lender or a local portfolio bank appraises to as-is market value and rent, not to a fear of the review desk. The rate is higher, but a great conventional rate with your equity locked up is a worse outcome than pulling cash at a slightly higher DSCR rate and redeploying it. That's the real BRRRR math, and it's exactly why DSCR is the natural BRRRR exit. Your primary is the hard one, that has to be owner-occ conventional, so you're stuck with the retail process there.
Three moves that actually shift numbers: give the appraiser a packet (scope of work with costs, before/after photos, permits, and a few of your own comps), order through the DSCR or portfolio lender instead of the retail AMC pool, and file a Reconsideration of Value with new comps when one comes in low.
The appraisers won't change. Switch your rental refis to DSCR or a local bank, wait past 12 months when you can, and bring a comp packet every time.