Advice Needed-Appraisal came back low on Duplex-Cover the Gap?

[Lee Graham]

Hello BP Community,

I` d appreciate some advice on a decision I am making about moving forward with a duplex I have under contract. I currently have three multifamily properties, ranging from 4 to 8 units. I'm doing well with all of them, and generating healthy cash flow. It's been 18 months since I made a purchase, and have been outbid on 7 units over that time. I've gotten more and more aggressive in my offers, ranging from  cash only for smaller properties, large nonrefundable escrows, no inspections, etc.

I had an offer accepted on a newer, 3 year old duplex last month. The sellers agent said they were considering multiple offers the first day, many of them cash. I have seen cash offers here up to 1 million on the others I have lost. I made a bid 10k over asking, and the seller accepted my offer. The appraisal came back 60k less than my offer today.

If I proceed, my lender would expect me to cover the appraisal gap. I could come up with the cash to cover the gap, but I'm concerned, with how the market is potentially softening in our area, that I may be saddled with a property that will be difficult to sell in the next few years. I tend to be a buy and hold investor, but am open to other strategies.

I have another lot that I could potentially build a duplex on , in the same area, and come in with a new build right at the appraisal value-a $60k savings. But, with the delays in our area in construction, it'd likely be a year to 18 months at a minimum prior to completion. I have locked in a  4.25 rate now on the mortgage for this duplex.

Would you wait and build, save the 60k now, and likely be saddled with a higher interest rate for the new build? Or forge ahead, cover the appraisal gap, and have an up and running duplex now?

Thanks for your advice...