Appraisal process after BRRRR

[Nathan Miller]

I'm a new investor looking to acquire 2-4 flats in Chicago's northwest neighborhoods. I'm looking for value add properties in which I can adopt the BRRRR method and try to pull as much of my initial investment out of the property after refinancing. I've identified a few apartments, but would like to some additional insight on the appraisal process from other investors who have implemented this method.

The big question I have is how do banks appraise a newly rehabbed 2-4 flat? Are they appraising it and providing refinancing based on the stabilized NOI or since these types of apartments don't require commercial financing, are banks/lenders solely appraising a property based on recent sales comps in the area?

These leads me to my second questions. How do nonconforming units impact future appraisal and refinancing after the apartment is stabilized. Does the bank not care whether one of the units is nonconforming and do they only look at the NOI, or is the nonconforming unit taken into account?

Any insight into this would be greatly appreciated and happy to connect with anyone willing to discuss.

Best - Nathan