How will a bank appraise my rooming house?

[Matthew Becker]

I am looking to (finally) make my first deal on a 3-bedroom single-family home in a college town for about $80,000. But I have a big question.

My intent is to:

1. Purchase with $80,000 cash
2. Some light rehab to create 2 more bedrooms, and fully furnish ($15,000)
3. Turn into a 5-bedroom rooming house for college students
4. Get appraised based on income it generates ($500/bedroom), aiming for at least $130,000 ARV
5. Refinance and take $80,000 out

I am hung up on Step #4. I've read that multi-family properties are appraised based on the income they generate, and single-family homes are appraised based on comps. Do I have any chance of getting a bank to appraise this single-family home based on income and NOT comps, once I've fully converted it into a rooming house, fully rented it, and secured all the necessary city hall approvals?

Thanks for reading!

[Corey Hawkinson]

@Matthew Becker The appraisal for SFH is based on comps. The idea is that it is the value the bank needs to rely upon should they need to take the collateral back and resell the property. So, the fact that you are renting it out by room doesn't really matter for the bank. If they had to resell the property the only thing that would matter is how much someone else would pay.

Multi family is different since the buyers would all use the property for income production. That’s why the rental income matters for multi family appraisals.