Brrrr refinancing not coming in as high as anticipated

[Brian Wingard]

My name is Brian and I have been part of biggerpockets for a few years now. I am on my 4th property and having some ups and downs. A few of the properties I have bought I did expect to break even or slightly appraise higher than what I bought them for. Those were duplex homes and the cash flow was right.  Now I have done a few properties where I bought them cheap and put in a fair amount of money to rehab them and make them 1000% better than before. When i would go to refinance the bank assigns an appraiser to view the homes and I keep feeling like they are coming in a lot less than what they should be. Before buying them I did study for similar houses in the area to get a baseline both high and low on a property. Some I feel I had to do a little extra work on to get them to my standards as well than originally anticipated. My big question is do you have any tips for myself to appraise what I am doing better so I get idea on overall value. The part that is messing me up when I refinance you can only do it for 80-85% so that is not paying down my line of credit enough so with each house the line is not being removed to what i would like to see. Does other people who brr face not having the line of credit wiped out as they did not raise the value of the home enough to still profit after the 80% allowed refinance? I am trying to learn how to set myself up for higher appraisals and also to pay more of my line down each time or actually profit from the equity. as I felt I should. 

1 Would switching banks be an option to get a better appraisal on my homes and refinance to basically start over in a sense?

2 I think I was naive in thinking my appraisals would factor in more of the materials used to upgrade my homes. I just redid a more expensive home that gets a great rent but can you get away with using just laminates, store bought cabinets and plain every day items to get the maximum appraisal? I always assumed better flooring and other supplies would add to the overall value but the more I look into this it seems they are just comping square footage to comparable homes, bathrooms, rooms in home and not so much focused on what is actually done to the home itself. It feels like they just want a somewhat updated home and types of material does not matter as long as the home looks nice. Is this right because if so I have been spending way too much on enhancements.

3 So now that I have a lot of my line of credit used because my appraisals did not come back as I needed them to be what path would you take to get back to paying down the line while still moving forward? Would you go for more of a duplex route to raise more cash flow to pay down the line? Any and all advice would greatly be appreciated.

[Andrew Postell]

@Brian Wingard this is such an important topic.  I am glad you are open enough to talk about this and how it impacts you.  I certainly wish more people who spend time on this subject....well, these 2 subjects.  If you are a "buy and hold" investor there's a lot of things to know but 2 of the most critical are:

1. How to calculate After Repair Value (ARV)
2. How to calculate Rehab Costs

And it's not so easy to understand.  People spend HOURS of training on this subject and there are plenty of horror stories of people who purchased homes...and didn't do ANY math before they bought.  So at least you are trying and you will get better at it.

So, how can you get better at estimating ARV? Treat this like college. It takes some people 4 years to get through college (and sometimes longer) so we aren't going to take just 1 class and call ourselves experts. We need to take multiple "classes" and become the SMARTEST person on this subject. Here's some ideas:

• Lean on your Lender - a good lender can show you how to estimate ARV.
• Lean on your Appraiser - ask your appraisers what they did.  Maybe even ask them if there's any training they could suggest for you.
• Lean on your Title Company - Title companies will often give free training, designed for real estate agents, on this subject.  Ask if they have anything coming up...if they don't, ask them to host one!
• Lean on your local Real Estate club - I don't know if you have any close to you but I lean HEAVILY on my REI clubs for this. They often will have sessions on this subject.
• Bigger Pockets? - Do they have any tools?  They have an entire forum on this subject.  Maybe ask this same question in there?
• YouTube? - It's got everything else, why not this?
• And ASK - What's the impact of a pool?  Windows?  Bathrooms?  Granite vs. Laminate?  Where do I get the most bang for my buck?

How can you get good at estimating your renovation costs? - This one is going to be a little harder to do. I actually had a contractor provide me with his renovation calculator. I met this contractor at a REI club...because he was teaching a class on how to calculate renovations! Get with people who are smarter than you to make you smarter too.

Again, we need to get smarter than smart on this subject.  This is money.  YOUR money.  Get out there and get better.  You can do this and maybe one day you can even be teaching one of those classes. Who knows?