I am not sure how long you’ve been in this game, and what your experiences have been, but in my world the practice of a refinance is an integral component of almost every deal I’ve ever do. Why, you may ask?
Why would you refinance a real estate investment?
Well, there are a few reasons. You guys know me as a “nothing down” guy – I buy property without my own cash. There are many ways this can happen, and this is perhaps a good article title for later on, the important thing to note is that but the essence of nothing down is not the there is no down-payment, but that I am not the one paying it out of my pocket.
The unfortunate side-effect of someone or something other than me making the down-payment on my acquisition is that this money is highly unlikely to want to stay in the deal forever. In short, investors want their money back within a specified time-frame, and this, in turn, means a refinance.
Additionally, when in the growth mode, equity is used to bridge additional acquisitions, and often this takes the form of a cash-out refinance. Actually, I prefer other methods, but we’ll leave that for later.
How appraisals affect real estate investments
One way or another, when a refinance is to game, it is very important to get a “good” appraisal, and this is where lots of folks stumble. If you build a strategy for moving your portfolio forward which requires a certain appraised value, and then you don’t get that appraised value, your whole entire game-plan could be in jeopardy.
Real estate investment appraisal regulations
Indeed, my friends, in our business it is very important that the appraisal comes back at a number that doesn’t significantly impact our strategy in a negative way.
However, those of us who’ve been in the game for more than 15 minutes, still have vivid memories of 2007, 2008, 2009… I have to tell you that back then, if the house stood – you had the appraisal you wanted. There was no logic to this, and exuberance permeated everything. A lot of what went on was pure fraud, and I would hope that we did away with all that. After all, a lot of regulations were passed to safe-guard against the nonsense…
Today, it’s not as easy as telling the appraiser “what you are shooting for.” No – it’s not that easy. But, there are strategies you can employ to try and help the process along to your liking. Here are a few of the moving parts:
1. Build an appraisal refinance strategy based on real numbers
Look – you have to be good today. If refinancing is part of your strategy, which means that you’ll have to get an appraisal, then it’s your job to know what the likely (and realistic) appraised valuation is going to be. This is more difficult if you plan calls for a refinance three years down the road, because obviously you must try to anticipate a lot of moving parts way down the road, but I never said real estate investing is easy! So, do it, or get off the pot 🙂
But, now that you’ve built the “picture” based on what believe are realistic numbers, it would suck if you still got some asinine appraisal, which is unreasonable (it’s happened before). So what do you do?
2. Talk to the appraiser – someone has to let them in
Did I mention – I love multifamily! Why – for many reasons, one of which is that as far as I know in every State of the Union in order to enter premises we have to give proper notice. Well, what does this mean – only that it places me, as the owner, on location!!!
This is huge, because it’s not slimy. Appraisers are not supposed to be influenced by lenders of owners, but at the end of the day – someone has got to let them in…
3. How to get the best appraisal for your real estate investment – be helpful
These guys have a tough job to do when appraising multifamily. The nature of estimating value of income property requires the appraiser to underwrite the income and expenses, and then to capitalize a value. Guess where they are getting all of the numbers – from you. Every time I’ve done this, the appraiser always calls back with questions – lots of questions. They want to do a good job. They don’t want to blow a deal. But, they have to justify EVERYTHING!
It’s your job to help the appraiser justify everything. Give them as much helpful data as you can, and not just about your building, but the neighborhood as well. You are the pro in this location…
This was short and sweet – but powerful!