We’re currently working our way through three much needed cash out refinances. As I outlined the other week, we’re pretty stretched in terms of finances right now. And a big part of taking some of that pressure off is pulling out capital from our latest rehabs, The McCarty House, The Grow Room Home (haven’t written about this one yet), and Somerset.
We have about $160,000 tied up, combined, in The McCarty House and The Grow Room Home since we’ve been dumping money into them and haven’t put a mortgage on them yet. Unfortunately, the appraisals for those didn’t come in much higher than that total sum.
Oh well, we can at least get 75% of the value out yet.
But a big surprise was Somerset where the appraisal came in at just $54,000.
Now, we purchased the home last year for just $40,000 and put about $15,000 of improvements into it. So the appraised value at least isn’t (much) lower than that. But I expected it to be around $100,000 due to two houses on the block, similar square footage and updates, that sold for $112,500 each. Things have really gone crazy in that neighborhood since April, with prices rising rapidly.
We contested the appraisal but heard back today that they aren’t budging.
Sweet.
I was really banking on pulling out some decent cash to invest in our next projects.
Why did the appraisal come in so low? Am I wildly out of touch with the home’s value?
For what it’s worth, I had two realtor friends pull comps for me. Both said they expected the home to appraise for $100,000 – $120,000 and they presented the comps to back it up.
Why it didn’t appraise very high likely boils down to two reasons. First, Detroit is notoriously tough for appraisals because the market is so erratic. You can have a home sell on the block for $100,000 and another sell for $20,000.
And lenders will lean conservative. So if they can point to enough comps that skew to the lower end of the market, that’s what they’re going to use. It makes it tough to pull off a true BRRRR in Detroit, especially when you usually have to dump a bunch of money into mechanicals.
So, will we still go through with the refinance on Somerset given our current mortgage was last done at an appraised value of $44,000?
Probably, even though it doesn’t seem worth it on paper. I’ll talk more about it later, but we’ve likely already spent most of the fixed costs to get to this point, our rate will drop, and so our monthly payment only goes up $2 while we’ll pull out something like $4,000 (woohoo…).
We’ll see how The Crown Jewel fares. I have higher hopes for that home simply because it’s located in a better part of the neighborhood and it will be a top-to-bottom (very nice) rehab.
But if that one doesn’t come out strong, we’ll definitely be doing some flips. I know if we listed Somerset on the open market we’d get at least $90,000 for it. And that’s what really drives me nuts.
And yes, we could change lenders, have it re-appraised, and hope for a better outcome. But on this end of the market it’s really not worth doing. I’d rather not spend the time and move forward.