Refinancing Fourplex Property- Beginner Here!

[Rick L.]

I purchased my first multifamily fourplex in June 2012. I paid 3.5% via a FHA loan @ 3.67%. The approximately $400/month in PMI is killing me so I've decided to try and refinance the property. I'm hoping for a favorable appraisal so I refinance to a conventional loan with 20% equity though a higher appriasal value.

I have performed several updates including installing a new roof, new aluminum gutters, updating one of the units (kitchen & 1.5baths), french drain system, new paint throughout, etc, etc

Do you have any recommendations for a Noob to the refinance process?

[Dion DePaoli]

There are some details missing to properly evaluate your desire. That said, you can possibly realize an increase in property value by submitting the improvements to the appraiser at the time of inspection. Whether the improvements you made actually increased the property value will be determined by the market the home is in.

The repairs you list do not strike me as promoting your property value up 20%. Putting a new roof on does not necessarily cause a property value increase nor do gutters. In a four-plex you only replaced one kitchen, so it is not all the units. These are items that will prevent value loss in the market place but not value increase.

Property values are a related range of similar properties. So you would really have to dig in and see what the value of similarly improved homes have. (remember your property is a 4 unit so only compare to other 4 units if possible)

Statistically roofs and gutters do not ad value as they are more of a maintenance item. However, if the roof had a leak or condition issue, then you might have realized an additional discount when you purchased it to cover the cost of repair. Whether that is a 20% discount has to do with the your purchase price and the value of the home at the point of sale.

Sometimes folks make the mistake of assuming there is no ceiling to market values and that is dangerous. REI purchase at discounts to FMV to avoid this issue. The opposite of doing that is presupposing the value will increase beyond the market and that does not happen that often at all. In layman terms, if you buy $100k home and put $20k in repairs, it does not mean your home is now $120k. More often it will mean you have an updated $100k home which the benefits are realized in the marketing time to sell the property and the diminishing of accepting any discounts for additional updating. In other words, you stand a better chance to capture a value at the top of the range of values opposed to the middle or bottom.