I will complete my rehab on or around June 1st, but unfortunately that will leave me insufficient funds for another rehab without borrowing money from someone.
My question isn’t about the financing, but about having the rehab appraised during the process. Appraisers in my area are notorious for undervaluing houses. It’s a somewhat corrupt, backwards city and because people generally want a lower appraisal for property tax reasons the appraisers actually give into them. This leaves me in a troublesome situation as I need to pull cash out to finance the next project, but don’t want to hurt my selling price with a low appraisal. Do I have to disclose the appraisal when selling? Is there some way around this?
Has anyone else been in a similar sitution and it so can you please offer some advice?
If the appraisals are notoriously low, wouldn’t that have given you a low appraisal when you bought it? At any rate, I think you should factor that into your purchase price from the start. I also think that if someone likes the home, they’ll pay the price. It even sounds like the appraisers are giving the buyers what they want to hear. In the end, your house is worth whatever someone is willing to pay.
The other commenter was right. If appraisals are low, it should have been factored in the 1st place. Second, why are you worried about doing deals when you’re broke?
If you need to take out money to fund another deal, you need a full-time job, a line of credit or a money partner who can fund deals and split profits. If the deal goes south, they get their money back, but no one loses. Regardless, you need some cash reserves and to start budgeting at least 5-10% contingencies into your projects.
If the appraisers are dirty and are just giving people a “low” appraisal to help them with property taxes, then they probably won’t have an issue giving you a “higher” or a “normal” appraisal either.
I know a local guy that did this to the point where he was out of business. He would buy low, rehab, get a high appraisal, cash out and then just do it again and again. The problem he ran in to was once he cashed out on the properties and once the market slowed he ended up with 10+ houses on the market where he owed at or more than they were worth. He is pouring concrete now. 