advice needed RE: Heloc with too low of appraisal

[Stacy C.]

Hello, new investor looking to get into properties asap. Have enough cash for my first one, so a line of credit is not critical to me moving forward. However I was really dead set on using a HELOC just so that I do not tie up all of the $ I do have in my first property, I would be more comfortable having my cash available in case I need it for my own home, repairs, or other deals that might come up.

I've only applied one place so far and the problem is that the appraisal came back very low. I haven't owned the house 12 months yet, so some banks will ONLY use the last purchase price of my home, which was $225k. However upon purchasing the property I did a lot of work inside and out, and believe FMV should be around $275k or more.

The bank did just a drive by appraisal, after discussion they said in my area where its more rural / less comps to pull, most of that number will come from the last purchase price. I have the option to pay for a full apprisal if I'd like but I don't want to waste that $, the bank really talked me out of it, saying that I would have had to put 200k into my house to see that much change on the appraisal.

It appraised at 237k when I purchased it. I owe 200k on it. So at a 226k value, I do not have enough equity to get cash from a HELOC. At 275 or maybe hopefully a little more, the numbers would work to get me 40k or so which is all I really want anyhow.

What are my options? Try more banks? Dont want to keep running credit for nothing. ANother idea is just to pay cash, use delayed financing and get a loan on the house. I'm just not sure at the moment whether the first house will be a flip or a rental, I'm really looking for both. A rental I wouldn't mind a conventional mortgage but a flip I'd rather use a line of credit. Another would be to skip both and hopefully find a deal that will allow me to do a cash out refi to roll that into property #2, but I've heard that's not so easy on a new purchase.

Just looking for anything I may have missed, I surely can't be the first person to try to get a heloc on a house that came back w/ a low appraisal that they know is worth much more!

Thank you in advance.

[Steve Wilmers]

Hi @Stacy C.-

I was in a familiar situation a little over a year ago.  I ended up going with the appraisal, cost between $300-$400, which gave the higher appraised value that I was expecting.  

My house is located in more of an urban area, so there were multiple comparable sales, and I was tracking the comparable sales myself using sites such as Zillow to estimate an appraised value of my house.  

If I were you, I'd wait until I found some comparable sales in the area myself before hiring out the appraisal.  In addition, see if the bank will use the same appraiser as the one that originally appraised the property.  They will be the only one (outside of you) that will be able to recognize the before/after difference in appearance of the property.