DO I OR DONT I? Duplex appraisal came in low but the numbers work

[Clark Henderson]

Hey everyone,

I am in a bit of a pickle as to whether or not to go through with a duplex in Clarksville, TN. A quick background on the prop; 1600 sq ft duplex in a nice area getting me 8% ROI after all expenses. I would have to put some money into it, but the main issue is that it appraised for 15k lower than what we were under contract at.

Of course I don't want to over pay for anything. But it's already been renovated in many areas and the numbers work. I was fairly conservative with the math and it still would get me 8% at current rents.

I was hoping to see what all your thoughts were as to if this is still a good idea or not? 

Thanks!

Clark Henderson

[Andrew West]

@Clark Henderson we just went through an appraisal gap situation like this on a pair of duplexes in Detroit area, so i feel your pain! It's tough to get a low appraisal when you know the numbers work well even on the higher purchase price. Like @Rylan Kean mentioned, step 1 is to try to use the low appraisal as leverage to get the seller to drop the price. Unless they had other competing cash offers, they should be motivated to work with you, knowing that if the deal falls through, the next buyer will likely be in the same exact situation with a low appraisal. 

If you're willing to spare the additional $15k to make up the difference, you'll essentially have a higher down payment on the loan which means a lower mortgage and better cash flow. This is just a factor of your personal goals. 

Ultimately, we decided to walk from our deal because the gap was just too high and the seller wasn't willing to budge. We had the extra money to put in, but because we're just getting started, we didn't want to tie up too much cash in a single deal and thus prevent ourselves from looking for the next one and scaling quicker. 

Good luck!