All Forum Posts by: Mike Abramowitz

So just got an appraisal back on a renovated duplex I'm financing. The appraisal came in lower than I was hoping for and upon digging into it, the appraiser used 3 comps. The breakdown consists of:

Comp 1- A property which had 1 unit that was gutted to the studs and another that was in half way decent shape. Condition was listed as "poor" for this one... but how is this not considered a distressed property and therefore disallowed? (MLS had no interior pictures but I have emails back and forth between the realtor and myself around the time it was listed confirming this properties condition)

Comp 2- A property which I purchased about 11 months ago. I put about 20k into the property to get it to market rents, including floors, kitchens, baths. (MLS had no interior pictures of this property but price reflected it...)

Comp 3- Probably the best comp of the 3 for condition. However, it was 1100 sq ft larger and it went under agreement 10/20/16 and closed around 12/20/16. So this comp is nearly 2 full years old. (Trulia claims that property values in the last year in this town have seen an 11% increase.... of course this isn't super reliable but it definitely shows that property values are increasing here just like everywhere else)

Another issue I had was the market rents this appraiser used (he had 1,000 and 1,100 for market rents) where I get 1150 and 1200 and both units rented in less than 48 hours on the first two and only showings with 10+ additional requests. Being a duplex this doesn't matter really but just adds to my frustration around this appraisal. 

I'll admit that there aren't any great comps in this town for duplexes that weren't either short sales or foreclosures, however, there are plenty in all the neighboring towns which are very similar. I think these comps have bumped the value of this property down about 15-20% of where I think they should be. 

Thoughts? 

CT is a pretty stale market in most areas, you should be able to find a 3 or 4 unit (duplex are a bit more tough)  that allows you to live for free in what seems like 80%+ of the state. You just need to be patient and flexible. Be prepared for the nicer the town the lower the cash flow. 

edit:--and by stale I mean a buyers market (which isnt the case for most of the northeast)

@Harry Asnien Where do you typically pull your lists to mail from?

Is it possible to have the seller cover a 5-10% commission (built into the price) to you if your representing yourself and getting traditional financing? So there is a 130K house, you put offer for 100K but write in a 10% buyers agent commission and bump the price to $110K. Then you get a loan for 25% of the $110K, but when the deal closes you get 10K commission Bc you’re representing yourself. (Numbers aren’t exact here but you get the point) Would a bank shut that down or is it possible? Obviously there are tax implications here that aren’t favorable short term (but that’s a different debate)

@Nathan Coleman - So option 1 seems like the route everyone takes (except when its only in their name and no partner is involved), things definitely could get sticky if they find out somehow or another. Option 2 my issue is that then the property is not in fact in the LLC and tax wise having rental income ect come through the LLC w/o the property in the LLC is a problem for multiple reasons. 3 would be ideal but the LLC doesn't have any income in it currently (as we just set it up this year and are trying to find the best way to transfer everything, so it would not be possible. (Additionally would a seasoning period apply here?) 4. If this is possible its definitely the best play, but I dont think its an option...

@Logan Allec - Sorry the title is misleading, its not what i meant but there was no way to edit it once it was posted. I come from a CPA background so I have a pretty good idea of how we're going to structure it tax wise once everything is in the LLC.

@Tim Joyce - from what I've heard from everyone it seems that the due on sale clause is 99.99% ignored when transferring into an LLC by most banks because its not a true sale (and only done for the purpose of asset protection as you mentioned) but I'm worried that having an additional owner in the LLC not on the financing may cause a bit more of an issue.

As far as the taxes side of things and operating agreement, I'm not concerned with that... my primary concern would only really be having the loan called/issues arise with the bank. 

Currently my partner has properties in his name that have conventional financing, we are looking to transfer these properties into the LLC we are partners in. What type of concerns should we have with transferring these properties, everyone talks about how the transfer into an LLC isn't an issue but what about when its not a single member LLC?

Interesting, didn’t know out of state commercial loans become an issue. My partner is actually in state in this situation so if we did take that route we could make it work, but definitely a great thing to know moving forward

Thanks everyone for the input, I had figured as much but was hoping otherwise....

@Max Taylor -- I'd kill for an 8-9 Cap in Somerville, let alone a 12 Cap, unfortunately they are all in CT... I'm trying to break back into the Greater Boston Market, but its just so hot still that nothing makes sense for buy and hold. I've picked up all these units in the last year or so and don't think is the right time to sell/trade up as capital isnt a huge issue, and I've been searching for something in the 1-5M range where I'd be comfortable investing and can't find anything that really excites me. So in the meantime, we've been snagging smaller multi's (admittedly also working towards gaining confidence to go big)  and keeping our eye out for some bigger fish. 

@Bob Green -- These are all out of state from where I live currently (I'm in MA these are in CT), most recent property we acquired yesterday, oldest is about 3 years ago.... most were acquired in the last 12 months pretty evenly spread out

Could be completely off on this number, but from what I've heard usually somewhere in the $100-150/sq ft depending on level of finish and where you're talking about.