All Forum Posts by: Michael Seeker

Unfortunately it's part of the business.  Banks are not going to lend without an appraisal, and appraisers have no reason to risk their license/reputation by giving a true opinion of value that might contradict a contract price.

If they are given the answer before they start, all they need to do is determine if the contract price is within a reasonable buffer of their opinion of value and if so, then the contract price becomes the appraised value.

Think about it this way, what if you had a contract for $250K and an appraiser came in at $248,500 - you would now have to bring an extra $1500 to the table or see if you could sweet talk the seller down $1500 (or maybe split the difference).  While this could work in your favor, it would be very annoying and you'd  be asking "Why didn't he just use the contract price?"

Hey @Chris C. - my wife and I just moved from SW FL about 5 mos ago.  Our house was built in 1998 and we had to replace the copper with PEX due to a leak under the foundation.  We found a highly reputable company and spent about $3K.

You should always know what you're dealing with and account for any expected upcoming expenses at the time of purchase.  I don't know if Orlando is as bad as Ft Myers area, but I wouldn't count on copper lasting too long if you find it in an older building.

@Douglas Orr - Perhaps trying NREIG, they are landlord-friendly and have good rates/coverage.

http://reiguard.com/

@Kenneth C. - you should not go into a purchase with the expectation that you'll break even.  For starters, you will either make money or lose money, the odds of coming out exactly even are near impossible.  As a new investor, you are likely going to make some mistakes along the way and those are going to cost you money.  If you plan on breaking even and are surprised by a $5000 issue, then you've lost money.  If you lose money on your first deal are you going to jump head first into the second?

You should flesh out the numbers both from a buy and hold perspective and a fix and flip perspective and have some options so that if you get stuck with the property you are not in bad shape.  Would you put the same finishes in if you plan to sell it vs. planning to rent it?

If you go into it with the mindset of breaking even, then you are setting the bar too low!

@Raj I. - you'd have to give a lot more information to get any sort of reasonable response. Is the house a SFH (single family) or is it a duplex (two units)? You mention one right after the other and these are two completely different things.

How many bedrooms, how many bathrooms, how many kitchens?  Does it need a new roof?  Does it need new plumbing, electric, HVAC, etc?

What are you trying to do with the property...fix and flip it or hold and rent it out?

Presumably the GC already looked at the property with you and is knowledgeable enough to assess the cost to repair.  Your best bet is to get numerous references from the GC and make sure they are reputable and will stick to a budget.  Asking on BP without providing any information won't get you a realistic response.

I've done rehabs in my area for under $10/sf and over $60/sf.  There are lots of variables that will have a huge impact on your costs.

This is unfortunate for the seller and it sounds like he might make it a deal-breaker.  You should not overpay for a property because the previous owner did.  What he paid and what he wants for it are both irrelevant to what you should pay for it (unless what he wants is lower than what you're willing to pay).

Sounds like he is wasting your time.  You should let him know his asking price isn't reasonable and you'd be willing to pay a reasonable purchase price if/when he is willing to entertain one.

@Tyler Ansell - If the seller believes their property is worth 40% more than it actually is, that is the only hurdle you need to worry about.  If they aren't willing to get realistic on their pricing, then go looking for a better deal elsewhere as you'll be wasting your time.  If/when the seller becomes motivated to sell at a reasonable price, then you might want to be ready to pull the trigger quickly.

If you really want this particular property, I would suggest viewing it and determining what it is worth to you (completely throw out the list price as it should not factor in to coming up with your own value).  Make an offer on it (even if it is 40% below ask) and say you'd be interested at that price point.

I would be surprised if their commercial valuation is not severely flawed if it results in a value 40% higher than a residential valuation in the same area.

When somebody refers heavily to small multifamily property as "commercial" it might mean the property actually has some preferential zoning that would allow it to be used as a business instead of residential rentals.  Is the property on a main commercial corridor or are there any other unique things about it that would make it more attractive than a duplex/triplex a block away?

@John Hole - I can't comment on the tax situation, but I am curious why you'd spend $2500+ on a fridge for a rental property?

I have mostly higher-end units and typically put entry-level stainless steel appliances in.  I spend around $1800 for an entire kitchen (stove, micro, fridge, d/w).  I don't think I've even had a $2500+ fridge in any personal residence I've ever lived in.  Just trying to figure out what kind of rental would warrant a $2500+ replacement fridge.

I know this doesn't answer your question and may be too late to help with this purchase, but it might be worthwhile to try to manage costs more closely on something like this in the future!

@Tony Velez - this really boils down to your personal situation and how you like to invest.

From a strictly financial standpoint, every time you transact real estate there are costs involved so if you can avoid them then you're probably better off.

Most lenders will give you 75-80% LTV. A typical sale will incur 6% realtor fees along with another 1-3% of other misc closing costs. Depending on the demand, you might also be looking at a sale price 5-10% below what you list it for (presumably close to the true value). Add all that up and a sale might cost you 20%. Why would you do that when you could refinance and cash out roughly the same amount of money and also keep the property and cashflow from it? I would avoid a sale unless you no longer want to own the property or the demand is very high in the area.

If your only goal is to raise capital (and assuming you're not towards the end of your 27.5 years of depreciation) then a refi might be your best financial play.

@David Gold - the interest portion of the monthly payment is deductible.  The amount you can deduct for depreciation might roughly equate to the principle portion so the net effect could be that you pay taxes on an amount pretty close to the amount of net cash you keep.

The portion of your mortgage payment that is principle vs. interest will depend on a number of factors, but the lender should send you a 1099 indicating how much interest was paid throughout the year which can be deducted on your taxes.