Cash out Refi - No Rehab

[David Levin]

Hey all. I could use a little feedback here. The situation:

I purchase a 6-unit MF property under market value and increase rents, currently $100-$150 under market. There is no deferred maintenance. Units could maybe use an upgrade if I wanted to go more modern but really unnecessary. They are clean and in very good condition. So, basically, no rehab. If I go hard money to purchase, could I do a cash out refi without having rehab involved? 25% down.

Purchase $350K 

AS Is Value $430K

After rent increase Value - $550K 

Thanks!

[Evan Polaski]

@David Levin, yes it is possible to cash out refi, but most, if not all lenders are going to require you to hold it for 6-12 months before they will consider lending on a new appraisal.  Anything over 4 units is going to be on the commercial side of the bank, so the lender has more discretion on appraisal approach and terms.  That is a good thing in the scenario.  But, as Joe mentioned, it is harder to push an appraiser to a high value without money being spent: not impossible, but harder.

That being said, I would make sure you have your info together.  Pull all the comps and one by one go through why yours is better or worse to settle into the value you want.  If you can get 900/mo in rent ($150x6), that equates to 10,800 per year and $108k more value at a 10% cap rate.  But cap rate is not the only way to value a property.  What are the comps gross rent multiplier?  What are the comps cost per door?  These will all weigh into an appraisal too.

In general with an appraisal, just be prepared to support your value to the appraiser.  Provide several comps that support your value.  And if you still get a low appraisal, be ready to make your case to the bank about why the appraisal is off.  Sometimes the bank will make their own adjustments, or they might order a second appraisal (to be paid by you, more than likely)