Advice needed for an appraisal cameback with 15K below purchase

[Sunny S.]

Hi,

The appraisal for a property at saint louis came back 15K down than the purchase price. The purchase price was 65k and bank appraisal came at 50K. This property is rented for 950$/month and cash flow per month is 350$/month ( after mortgage, tax and insurance).
Now because of the 15k less appraisal value, I will end up paying 25K down for this 65K property. Do you think its worth to go ahead with this property ? I think it take almost 6 years to recoup this 25K down and start building equity. Do I need to go ahead only because of the cash flow even though there won't be any appraisal for this property in the next 5 years?

Please give me your opinion and advice.

[Joe Villeneuve]

No, it's NOT selling at $65k because the appraisal came in at $50k.  You're missing the most important thing here...the appraisal sets the price.

My recommendation is to offer $50k because of the appraisal.  IF the sellers sticks to the $65k number, remind them that the appraisal was for only $50k...and will be for everyone looking to buy this property.  Once an appraisal is in place, the value of the property is set based on financing.  This means, if anyone is looking to buy using financing, they will use the same appraised value.

Putting a higher DP in just means (as you've noted) this property costs you more, and you won't make a profit for almost 6 years...if all goes smoothly...which you know it won't. Through my experience, for every year a property is held after 5 years, doubles the cost due to CAPEX, normal repairs, etc...(remember, your cost is what comes out of your pocket only, which should be just the DP up to that point). This means it will take more like 8 - 10 years to break even. WAYYYYYYYYYYY too long of a time period.

Buy $350/month in CF with a property that costs you less...or, wait until the owner gets smarter.  IF someone else isn't as smart as you and buys using a higher DP, then remember this, "Sometimes the best deals are the ones you don't make".