paying more than appraised value?

[Mary Hoyt]

Ok, we went back to the drawing board last night and decided what kind of cash offer we are comfortable with on this distressed triplex (a 1935 house turned into a triplex in 1995 that has stayed at 90% or higher occupancy since -right around the corner from us - high rental demand area and location is right next to bus stop/technical college, etc)

We have been under contract at 71K for 5 weeks. Appraiser had the hardest time completing appraisal b/c of lack of comps. He ended up using some old quadplexes in the area and came up with an as is value of 21k. (59k after the 38k of work we are planning to put into it). By the way it is very rentable as is (just needs new carpet and paint), but most the 38K would really preserve the investment, solidify the rental income, and we want to be responsible landlords.

We have decided not to touch the equity in our primary mortgage (most of it was a gift from my parents, so I especially want to respect that.)

Currently, we have a request into Fannie Mae to reduce the sales price to 21K according to the appraisal. We are expecting them to say "no." And then we are planning to do a cash offer. We have 17k cash on hand to work with and we can access a 401k loan at 4% for 5 years, so our "highest and best" will be 35k cash and then re-fi for 70% of appraised after-construction value (59K) - WF lender (who was wrong last time) is still saying we can easily get that to do the construction. #s below.

cash offer 35000
attorney fees 1000
401k loan 24000
our cash 11000


Re-Fi - amount out 41,300 70% of 21k plus 38k = 59k
pay construction 38000
re-fi closing costs- cash 5000 pay cash
leftover from re-fi 3300 7300 total cash for emergencies


monthly cash flow:
re-fi loan 210 41,300 over 30 years
401k loan payment for 5 years 448 24000 over 5
taxes 167
insurance 100
total month pymnt 925

Rental income/expense: years 1-5
rental income minimum 1675 500, 550, 625
initial monthly pymt -925 first 5 years
rental profit 750
taxes on profit 10% -75
reapirs per month -200
rent loss empty units -100
profit 375

[Kelly N.]

Hi Mary,

I'm new too, just responding to your thoughts on giving up if this deal doesn't happen...

I fell in love with a house, beautiful duplex that had EVERYTHING updated. We bid low on it, they countered, we countered again, ended up loosing it to another buyer who paid 90% of their asking price- we were at about 80%. You know what happened next? We quickly found another deal! Got it for 2/3 the listing price, fully occupied and cash flowing. This was actually a house I initially rejected, mainly on emotions. Not the prettiest thing, and the studio apartment has a funky layout, but the thing rents fine. We've since got a contract on a second triplex, got a great deal on this one too! We're paying about 93% of the asking price, but they'd just lowered the price by 22% so I still feel we got a deal. Our inspector was shocked at the price we got and this house is prettier than the first. And more importantly, will make more $$

Anyway, the point is, you decided this was something you wanted and went for it. It may not work out on the first house, but there will always be another house, another deal, and possibly better ones. So keep going, keep after it, make this happen! I'm a stay at home mom too, looking forward to teaching my kids the ropes so they can be financially secure too!

Kelly