How to Challenge an Appraisal for a BRRRR on 1st Section 8 Deal - RJ Sarabi & Chris Dou
How Two First-Time Investors Challenged an Appraisal and Won on Their First Section 8 BRRRR Deal
Why This Episode Matters
Getting started in affordable housing isn’t easy. Appraisals can come in low, holding costs can add up, and government processes often take longer than expected. In this episode of the Affordable Housing & Real Estate Investing Podcast, host Kent Fai He sits down with RJ Sarabi and Chris Dou, two new investors who bought their first Section 8 rental in Birmingham, Alabama.
They walk us through the entire process: from negotiating with a motivated seller, to managing a rehab, to challenging a low appraisal that could have derailed their BRRRR strategy. Their story is packed with lessons for anyone looking to enter affordable housing while avoiding costly mistakes.
Kent Fai He is an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.
How did RJ and Chris find their first Section 8 rental?
RJ and Chris were investing remotely, one based in California and the other in New York. Both priced out of their home markets, they leaned on mentorship and research to select Birmingham, Alabama as their entry point.
They found a property listed for $120,000 that had undergone several price drops.
They negotiated it down to $82,000 all-cash.
Rehab was estimated at $14,000 but ended up costing $24,000 due to replacing the HVAC and extensive landscaping.
By focusing on Section 8 rents, they knew their three-bedroom home could bring in around $1,175 per month—22% above market for the area.
What challenges did they face during rehab and inspection?
The rehab, originally projected for two weeks, stretched to nearly a month. Then came the Section 8 inspection:
The property failed on the first try over minor issues like chipped wood and small door repairs.
Contractors corrected the items at no additional cost, and the home passed on the second inspection.
Despite that win, paperwork delays meant the tenant didn’t move in until March 2024—four months after closing.
Lesson learned: Always budget for extended holding costs and assume at least one failed inspection when underwriting Section 8 rentals.
How did they challenge a low appraisal successfully?
The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) hinges on a solid appraisal. Their first appraisal came back at $90,000, far below expectations. Instead of accepting it, RJ and Chris took action:
Reviewed the appraisal and identified bad comps: a two-bedroom used for comparison, an unrenovated property, and even one that hadn’t closed yet.
Submitted their own comps, expanding the radius to find more relevant sales.
Documented the rehab with line-by-line contractor invoices and photos.
Provided proof of Section 8 rents being 22% higher than market.
With this data, the appraiser adjusted the valuation up to $130,000—a 50% jump.
What were the financial results of the BRRRR?
Even with the higher appraisal, not everything was perfect:
They refinanced into a DSCR loan at 8.42% interest, securing an $85,200 loan.
High closing costs ($8,000) meant they still had equity tied up.
After debt service, property management, and CapEx reserves, the property cash flows about $100 per month.
It wasn’t a home run, but it was a profitable first deal with priceless lessons for scaling up.
Key Insights from RJ & Chris
Never accept an appraisal at face value. Review the comps, gather data, and push back respectfully.
Budget for delays. Section 8 inspections and government paperwork can add months of holding costs.
Partnerships work best when simple. They split operations 50/50 and involved three silent capital partners.
Invest in quality rehab upfront. Replacing the HVAC now avoids major CapEx later.
Choose mentors wisely. They selected coaches with real Section 8 experience, not just flashy marketing.
Memorable Quotes
“We thought the appraisal was final, but by respectfully presenting better comps and our rehab data, we got the value increased from $90K to $130K.” – RJ Sarabi
“Expect worse numbers than you underwrite. Holding costs, closing costs, inspections—things will always take longer and cost more.” – Chris Dou
“Treat every stakeholder—lenders, contractors, appraisers—as partners. Relationships today set you up for deals tomorrow.” – RJ Sarabi
Common Questions Answered in This Episode
How do you challenge a low appraisal?
By identifying inaccuracies, presenting better comps, documenting rehab work, and showing verified Section 8 rent data.
How long does it take to lease up a Section 8 rental?
It can take 3–4 months from closing to tenant move-in due to inspections, re-inspections, and housing authority delays.
What are realistic holding cost assumptions?
Budget at least four months of expenses, even for a small single-family rental.
Is BRRRR possible with Section 8 rentals?
Yes, but cash-out refinances depend heavily on appraisal results and DSCR requirements.
Why Affordable Housing is Hard to Solve
RJ and Chris point to two big barriers: stigma and process inefficiency. Many investors avoid Section 8 because of stereotypes about tenants, while government delays discourage participation. But in reality, these tenants are families with stable rent payments, and the need for safe, affordable homes is massive.
Final Thoughts
RJ and Chris prove that even first-time investors can navigate the challenges of Section 8 rentals, from inspections to appraisals. Their persistence turned a disappointing $90,000 appraisal into a $130,000 valuation and gave them the confidence to grow their portfolio.
Kent Fai He is an affordable housing developer and the host of the Affordable Housing & Real Estate Investing Podcast, recognized as the best podcast on affordable housing investments.
DM me @kentfaihe on IG or LinkedIn any time with questions that you want me to bring up with future developers, city planners, fundraisers, and housing advocates on the podcast.
