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Updated over 4 years ago, 03/09/2020
Low Appraisal for a Turnkey Property
As a new real estate investor, I decided to ease my way into SFR ownership through turnkey companies. After vetting companies, I settled on two in markets I decided to invest in (1) Memphis Invest, and (2) Memphis Investment Properties. Yes, I confused the two at the start. However, as I selected properties that I wanted to make offers on with each, I learned that the two were very different in at least one important way – at least for me.
The PSA I was sent from Memphis Investment Properties (MIP) had an appraisal contingency that gave me several options if the property didn't appraise for at least as much as the purchase price, including allowing me to cancel the contract. As it turned out, the property appraised above the purchase price and I closed on my first rental property.
However, the PSA I got from Memphis Invest had no appraisal contingency. When I brought this to the attention of my Memphis Invest Portfolio Advisor, she explained that I would have to go through with the purchase even if the appraisal came in lower than the purchase price. She said that appraisals occasionally came in low and that I should be prepared to bring additional funds to closing in case it happened to me. Because Memphis Invest wouldn't negotiate on this point, I didn't commit to buy the property.
As a newbie, I'm wondering which of these approaches to low appraisals in purchasing SFRs (MIP or Memphis Invest) is more common among turnkey companies. Also, are the any circumstances in which an investor should be prepared to make up the difference out of pocket for the gap between the appraisal and the purchase price? Although this doesn't seem prudent to me, I'm open to learning about circumstances beyond my limited knowledge about real estate investing in which this might make sense.