Income Approach vs Comps Approach Appraisal

[Stephen Torti]

Hi All, got the Clear to Close on my first multi! So, question about the appraisal, I bought the property for $170k and the comp appraisal came back at $174k but the income approach came to $184k and that's before I add 2 additional bedroom or do any renovations. The value of this house will be substantially higher using income approach when it's time to use equity to buy my 2nd investment. This is a BRRR property.

So my question is, when would a lender use income vs comp approach when using equity line of credit or cash out refi?  Does it depend on commercial loan vs residential loan? 

Rhode Island

Providence

[David Faulkner]

When you say it is multi-family, is it 4 units or less? ... Anything equal to or less that 4 units is still considered residential real estate, and as such comparable sales method is the industry standard for appraisals ... income approach would not and should not be used if they follow industry standard.

If on the other hand the multi-family is 5 units or more, then that is commercial property that will be appraised with more of an income approach. Comp sales will still be considered in this analysis, but they will be considered to determine the market CAP rate, which then can be used along with the NOI the commercial property generates in order to determine its fair market value in the appraisal.