first Investment 3 plex offer made - appraisal low - bad investment or appraisal off?

[Paulina Purnama]

Hi guys, I'm sorry if this post does not belong in the Deal Analysis but I'm a first time investor and finally got out of my anaylsis paralysis and made an offer on a 3 plex (converted single family).

I used conventional bank financing. 30% down with 4.375 rate, $2000 closing costs. Everything was going fine but today appraisal came back at 7.6% below my offer.

List price $169,900

Accepted offer was $164,500

Appraisal came back as $152,000 sales comparison approach. He did mention Income approach was $158,000 but he did not think that was the way to appropriatly appraise this property.

I went back to the seller at $152,000 and he refused. His final offer was $162,500.

Now big question is do I pay the difference or do I walk?

I'm already out $750 for the appraisal and $500 for home inspection.

Here are the financials on the property:

It is a older SFH that was converted to a 3 plex. Built in 1957.

Unit 1: Rents for $825 and than INCLUDES heat and electricity

Unit 2: Rents for $550 and INCLUDES heat and electricity

Unit 3: Rents for $700 and that only includes heat (electric is on separate meter)

So total income is $24,900 - 8% Vacancy = $22,908 annual income.

Annual heat (for all units) + electric (Units 1&2) = $3900

Maintenance I assume 10% of gross rents = $2490 

Property Management @ 10% = $2490

Lawn and snow = $1200

Property Insurance = $1400

Real Estate Taxes = $1365

Cap Ex reserve = 10% of rents $2490 (does cap ex figure into cap rate?)

Any advice would be much appreciated. Should I walk? Does the income justify me paying over appraisal?