Helping calculating ARV for a duplex in a commercial loan

[Joshua Baldovino]

Hello. I’m trying to figure out how much I’d leave in a Brrrr deal originally financed by hard money. 

The duplex we have under contract is the smallest of all the comps. However, on a cash out commercial refi, do banks account for rental income in establishing the ARV or is only based on the average price per sqft, condition, and amenities?

For context, after rehab and refi this would hit around 1.2% rent to price ratio. But does that even matter in the appraisal? Thanks!

[Kevin Romines]

You can do a 2 unit as a commercial loan, however you will get better terms if you do it as residential. If its in an LLC, you can revert it to personal ownership and do a Fannie Mae refinance and then after refinancing, move title back to the LLC. Fannie Mae changed their rules to now allow this as of 6/1/2016.

Based on doing this as residential, you can do cash out up to 70% of the appraised value. Or maybe a better set up is to do a no cash out up to 75% followed by a HELOC from Pen Fed Credit Union up to 80%, so long as you own 4 properties or less (including your primary) Pen Fed has the best terms available on Non-Owner occupied properties.

Commercial will be rates as much as 2% higher than a residential loan. See Fannie Mae's updated guidelines down below:

[Joshua Baldovino]

Originally posted by @Kevin Romines:

You can do a 2 unit as a commercial loan, however you will get better terms if you do it as residential. If its in an LLC, you can revert it to personal ownership and do a Fannie Mae refinance and then after refinancing, move title back to the LLC. Fannie Mae changed their rules to now allow this as of 6/1/2016.

Based on doing this as residential, you can do cash out up to 70% of the appraised value. Or maybe a better set up is to do a no cash out up to 75% followed by a HELOC from Pen Fed Credit Union up to 80%, so long as you own 4 properties or less (including your primary) Pen Fed has the best terms available on Non-Owner occupied properties.

Commercial will be rates as much as 2% higher than a residential loan. See Fannie Mae's updated guidelines down below:

Wow! Great info Kevin! Do you lend in Columbus, OH? I really appreciate the value you've shared. 

[Kevin Romines]

I don't as of yet, however I'm adding licenses in other states as we speak, so I could be in a few weeks if you can wait? However if not, I have loan officers within my company that do, so I can refer you to one of them? Let me know your thoughts?

[Marc Rice]

@Joshua Baldovino

There are 3 approaches to an appraisal.

1. Sales Comparison Approach - looking at comparable sales for similar properties

2. Cost Approach - how much it would cost to replace the property

3. Income Approach - uses the revenue your income producing property is creating

Every appraiser uses a combination of the 3, but for most residential 1-4 units they heavily favor the Sales Comparison and Cost Approach. Some commercial lenders may have appraisers more geared towards rental property which could have them rely on the Income Approach more but every appraiser is subject to their own opinion.

[Joshua Baldovino]

Originally posted by @Kevin Romines:

I don't as of yet, however I'm adding licenses in other states as we speak, so I could be in a few weeks if you can wait? However if not, I have loan officers within my company that do, so I can refer you to one of them? Let me know your thoughts?

Hi Kevin. Of course. We don’t close until mid March and still have about 2 months of rehab after that. Feel free to follow to when you offer loans in Columbus. 

[Joshua Baldovino]

Originally posted by @Marc Rice:

@Joshua Baldovino

There are 3 approaches to an appraisal.

1. Sales Comparison Approach - looking at comparable sales for similar properties

2. Cost Approach - how much it would cost to replace the property

3. Income Approach - uses the revenue your income producing property is creating

Every appraiser uses a combination of the 3, but for most residential 1-4 units they heavily favor the Sales Comparison and Cost Approach. Some commercial lenders may have appraisers more geared towards rental property which could have them rely on the Income Approach more but every appraiser is subject to their own opinion.

 Hi Marc. Really good to know. I see you’re in Columbus. My property is in Columbus. Do you have any lenders that you’d recommend I connect with about this property?

[Austin Steed]

@Joshua Baldovino On smaller MF properties I'm usually seeing appraisers go more off of the sales comparison approach. However if you work with a commercial bank at all they'll want to see the asset making a profit. 

With BRRR's having a very important variable of the appraised value I always meet the appraisers at my properties in Columbus and give them a couple of solid comps in the area. I've had success with this and haven't had any too crazy low appraisals... but I have heard of them.

[Joshua Baldovino]

@Austin Steed

Hey Austin. Really good to know. My agents said they’d meet the appraiser as well. But just curious because this is our first duplex.