Almost Lost $24,000 on BRRRR, Instead Made $8,000

[Stephen Glover]

My numbers showed a conservative ARV of 3/1 rancher in Richmond, VA at $135,000. All-in costs including repairs, title, legal, lender fees, etc. was $108,000. I developed a relationship with a new bank with great portfolio products and was excited to work with them.

Renovation was completed 2 weeks after closing. Refi was underway with the appraisal 1 week later. Appraisal came back at $105,000!!! The bank sent a note saying they would only refinance 80% of $105,000. I was slated to lose $24,000 on an expected breakeven BRRRR.

After a small heart attack, I reached out to a few RE professionals in the area and the general response was "That sucks!" when hoping for a solution.  I remembered a few situations on BP podcasts where guests spoke about respectfully understanding the appraiser's methods, communicating your misunderstanding, and presenting appropriate data to support a revaluation.  Solely because of that podcast or two, I did just that.

Appraiser was willing to revaluate and came back a week later with an appraised value of $145,000.  The closing date is set, and I'll be paid $8,000 after paying off the private money and all other costs and have 20% equity in the home.  Mortgage will be ~$800/month and rent is $1250 with a two year term already in place.  

I write this because I would have taken a huge loss if I didn't know any better. There was no "option" to contest the appraisal. I might have left the bank completely, which had a great product and people. Luckily, the numbers were there and things worked out alright with an increase of net worth of around $35,000 in about a month with $0 of my own money invested on one SFH. Thanks BP!

[Stephen Glover]

@Alexander Lang that podcast saved me a lot of time and effort, for sure!  Being confident in your numbers and being persistent were very important- and understanding the appraiser's point of view.  Thanks for reading.

@Joe M. Thank you.  Didn't change anything, just offered more information.

-A very detailed CMA from the MLS

-Comparable units on Zillow

-The home's current listing on Zillow to show improvements (I had it listed for rent)

-Every capital expense line item and cost (value) associated with each

-Shared history of the home and neighborhood

It was a national appraisal company, (which I also wouldn't have understood without BP) so they knew little about the area I was investing in and did their best.  Very professional company, just missed the mark.

@Will C. @William Lee  Welcome to DM me if interested.  For the record, this post isn't intended to reflect negatively on the bank whatsoever.  I refer investors there often and work with them for my own investments. It's moreso to emphasize the shock of a low appraisal and that it's possible to overcome it.