All Forum Posts by: Jeff Copeland

Duplexes, much like single family homes, will be mostly comps. The appraiser may give some weight to income/cap, but probably not a lot.

The truth is, you can calculate, guess, and hope all you want. But you will be paying for a professional appraisal anyway, and it will be gospel for the most part. Ultimately, the V in LTV will be determined by one individual on one particular day: The Appraiser.

The good news is appraisers use a very standardized methodology, and there's no reason to think you're going to get a value that's way out in left field. 

And because of this very standardized methodology, one thing appraiser love is data. 

Rather than doing your own self-appraisal, I would spend my time putting together a packet of information for the appraiser that consists of:

1. Any recent past appraisals done on your properties (or on comparable properties nearby if you can get your hands on them somehow). Also note, if you have an appraisal of your property from two years ago, and you know your market has appreciated by 10% (or whatever) annually, that alone can give you a pretty good idea of the current value. 

2. Details info about any improvements you have made to the property. Focus on value add things like new kitchens and bathrooms, floorplan changes, new flooring, landscaping, etc. Sure, it's nice to let the appraiser know about new roofs and HVACs, but these are capital expenditures, not improvements, so they won't add as much value as one might think.

3. Any recent comparable sales you are aware of, with as much detail about the transaction and the property as possible. Especially anything that was not listed in the MLS. There might be 10 comps in the MLS that sold for $400k. But if you know the duplex next door that's just like yours sold for $500k off market, the appraiser might completely miss that if the data isn't readily available. 

4. Copies of your rent roll and leases. They will need this for their rental analysis. Make their lives easy. 

Finally, speaking of making their lives easy, make sure you are on top of the actual appraisal appointment when the appraiser visits the property: Make sure your tenants receive proper notice, maybe hint to them to tidy the place up as much as possible, make sure the grass is freshly cut and the exterior is spic and span, and make sure someone is present with keys and all pets are secured. Nothing will annoy your appraiser more than having to make two trips because your keys didn't work, or your tenants refused entry or left their pit bull roaming the apartment when they left for work. 

As an experienced PM, if the husband checks out and qualifies on his own, a foreign spouse is not a major red flag for me. "US Citizenship" is not one of our tenant screening requirements. 

I would be extra thorough in verifying employment, income, etc just to make sure nothing fishy is going on, but otherwise would probably move forward. 

I'm an investor, and I also own a real estate brokerage and property management company, and can tell you I do not recommend Wise Agent.

I too am researching CRMs and was recently turned on to Zoho by a very trusted source. I haven't signed up yet, but I really like what I see so far. Definitely add it to the list!

There are three methods of real estate valuation:

1. Comparable Sales ("comps")

2. The Income Approach

3. Replacement Cost Analysis

A real estate appraiser can use one, can use all three, or can weight them based on market conditions, the property, and their personal expertise. 

A single family home is going to be mostly comps. The lender (who orders the appraisal) may still want a rental analysis done, especially on a DSCR loan product (since it is based largely off income, expenses, and debt service) but the value for the LTV will likely be determined almost exclusively by comps.

The income approach, which looks more at the property's income and cap rate, would be more appropriate for a large multifamily, or a self storage facility, or a car wash. 

A small 2-4 multifamily, an appraiser might use a blended approach, and use some weighted average: 80% comps and 20% income, for example. 

I think the replacement cost approach is somewhat self explanatory, but market value is often higher than replacement cost.

I'm not aware of a 10 point scale rating for Flood Zones. 

FEMA's Flood Insurance Rate Map is based on the likelihood of flooding in any 100 year timespan.

Properties in Zones A, A1-A-30, and AE and inside (or "below") the 100-year flood plain, meaning they have a 1% chance of flooding in any given year. These properties require flood insurance. 

Properties in Zone X are above the 500 year flood plain, which equates to a .2% chance of flooding in any given year. 

Properties in Zone X-500 fall between .21% and .99%

The latter two (X and X-500) generally do not require flood insurance. 

I used to fall in the camp of @Troy Gandee and believe that flood zones were "not necessarily indicative of a house that floods. It just means in a geographical area that could flood". That was before my home flooded in November 2020 (after 15 years of living in it with no issues). 

Properties in flood zones comes with three major concerns:

1. The cost of flood insurance.

2. The risk of flood insurance premiums skyrocketing if the Federal government ever makes major changes to the National Flood Insurance Program. 

3. The risk of flooding itself, which is incredibly disruptive and can make your property uninhabitable to 3-6 months at best. 

On the one hand, if the numbers work, the numbers work when considering investment properties. But these concerns would give me pause when considering holding long term. 

Here is a great resource on flood zones in South Carolina. 

@Allan Smith I was going to say the same thing - Some experienced home inspectors are also GC's and/or otherwise qualified inspect low rise buildings in addition to single family homes and small mutlis. 

Find the right inspector, and the due diligence process really isn't that different.

Quote from @Samuel S.:

I would like to run a report to see every single apartment complex, and every single industrial building within that county.  And also be able to pull the owners contact information so I can send direct mail. 

This information is generally available for free, online from the County property appraiser / tax assessor's office. 

In a few rare cases you might have to visit in person and pay for a list, but most have it online now. 

Here is an example from Pinellas County Florida (click on downloads/reports/maps in the lefthand column - you can even download them as preformatted Avery address labels!) - Just find the equivalent for the county you are interested in. 

It can take a little effort to learn how to manipulate the data, but for many it beats paying $2000/mo for Costar!

(The actual cost varies, but it ain't cheap!)

Only another owner-occupant can assume an FHA loan, if they qualify based on the usual requirements (credit, income, and DTI).

Mathematically, the concept of Debt Service Coverage Ratio (DSCR) is simple.

You need:

The property's annual  income.

Minus the property's annual operating expenses (and remember that debt service is not an operating expense)

This gives you the Net Operating Income (NOI). 

You take the NOI and divide it by the annual debt service (principal and interest payments in year one). 

This tells you (and the bank) how many times the property's net income will cover the debt service. This is the DSCR. 

If the DSCR is 1.0, the property breaks even after paying the mortgage.

If the DSCR is .80, the property is running at a loss (and the owner/borrower would have to come up with 20% of the debt service out of pocket)

If the DSCR is 1.2, the property covers the debt service and still has a little bit of a buffer.

Most lenders want to see 1.25 or better.

In your scenario, since you were originally looking to use an FHA loan, I assume you don't have a large down payment. That's the problem with "low money down" such as FHA at 3.5% - You are financing 96.5% of the purchase, which makes your debt service much higher than if you put more money down. 

So DSCR loans usually don't come with a low down payment. Obviously, it depends primarily on the property's income and expenses (NOI). But qualifying for a DSCR product often means putting more money down, in order lower the cost of the debt service, in order to get the DSCR high enough to satisfy the lender. 

I was just reviewing my portfolio the other day and noticed a property I refinanced in 2018 was at 5.85%. How soon we forget!

Even if we see baseline rates (for owner occupants) in the 4's in the next year or two, that's still means 5's and 6's for investment properties. 

This is the new normal, and I expect the market to crank back up in the Spring as seller's come to terms with the reality of rapidly increasingly supply, and buyers get off the sidelines and realize interest rates aren't going to plummet and there is always a cost associated with doing nothing.

That being said, we remain a loooooong way from the pendulum swinging to a buyer's market in most areas, so I don't see a major dip in prices, just a slight correction and cooling off of appreciation.