Today I did my first CASH IN refinance! Yes I said CASH IN not CASH OUT. Meaning I had to bring $104,000 to close the deal. Why?
1.) I overshot my after rehab value on the properties I was refinancing. I used an income capitalization approach to forming my ARV instead of a sales comp approach (what I should have used.)
What did I learn from this painful mistake?
1.) Stick to buying larger commercial properties which fall under commercial appraisal standards. Commercial real estate is considered any thing with a commercial use or 5 units + multifamily residential. This ensures that every dollar of net operating income that I drive is accretive to the property value.
2.) Appraisals (residential and commercial) are always more conservative on refinances. On a purchase, when you have a contract price, it carries a lot of weight with an appraiser who is working on your deal.
Matthew Drouin is a full time real estate investor and REALTOR with 12 years of acquisition, disposition, development and management experience in Rochester, NY.