Exceeding 20% rule

[Gregory Childs]

So, we buy right - we rehab the property - we advertise and the we get a valid contract signed. All is good, even the apprasial exceeds our selling price.. and our profit margin is strong (around 30%).
Then we get the call - can we substantiate the repairs we made for the lender. We submit our receipts and SOW and the underwriters want to max out our selling value at our cost + repairs made.. even though the appraisal "they" ordered comes in higher than our selling price.
Is anyone else running into this? It's happened to us in both GA & AZ.

[Steve L.]

Whenever they ask, which has happened to me maybe 30% of the time. I ignore the specifics of the question and provide them with:

1. An Added Value Spreadsheet
Don't be outrageous but a kitchen might cost a regular person $25,000 to totally redo, etc.

2. Before and After Pictures
I focus specifically on the BAD pictures. If a rooms before looks to nice, I usually don't include it.

3. Copy of All Offers (pg1)
Most my properties get 10+ offers in this market. I always include a spreadsheet outlining all the offers and the 1st page of the contract.

Of that 6-7 times I have prepared that package I never have been asked for additional information.