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All Forum Posts by: Justin Moon

Justin Moon has started 10 posts and replied 23 times.

All,

I'm always thinking about ways to creatively finance property, and this idea came to my head while I was driving home. I tried using Google to find a comparable example, but I was unable to track one down. 

I am always in the market to purchase more investment properties to rent out, but I want my interest rate to be as low as possible. Is it possible to use gold coins (major ones like Krugerrands or American Eagles) as collateral to buy down the interest rate? Just to clarify, I am not using the gold as part of the down payment. I have a lot of gold bullion that I would like to keep as an investment but since it does not generate any cash flow, I would like to put it to work for me. 

What I am essentially trying to accomplish here is transferring more of the risk over to my side of the fence while keeping the collateral in my portfolio. As the underwriting institution, I feel like this would be a valuable proposition since the upside if quite huge in case I default on the loan. 

Does this type of loan exist? If it does, what is the realistic amount I could expect to shave off of the interest rate and what amount of gold would I have to put down in order to shave off the aforementioned points worth of interest? Just so we have a reference point, let's say the property is valued at $150,000 and I put down 20%. The loan would be a 30 year investment type mortgage for $120,000 at 4.5%. 

Originally posted by @Jon Holdman:

You're getting really wrapped around the axle about $/sq.ft.  Unfortunately, that's a common error.  You cannot take the $/sq.ft. for smaller units (or houses) and multiple that by the size of yours to get a value.  Once you have the basic infrastructure in place, adding square footage is cheap.  Appraisers know that.  They will take the $/sq.ft for the comps, and use a factor of perhaps one third of that to make the adjustment.  That is, they value those extra square feet at about a third of the $/sq.ft. sales prices of the smaller comps.

Sorry, but this is a serious problem.  Its like the "I have the biggest and nicest house in the neighborhood" effect.  That means on a $/sq.ft. basis your property will be the lowest in the whole project.  Once you exceed the average specification for the project, the added value drops off very rapidly.  

Originally posted by @Jerry Ta:

@Justin Moon price per square foot is really not the deciding factor when doing an appraisal. An appraiser will look to see where the neighborhood tops out in terms of total price before ever looking at price per sq/ft and make the adjustment accordingly.

At the end of the day, the appraiser's goal is to determine the fair value of your condo unit, or what it could sell for if it were to go on the market today by using comparable sales. I would find it hard to believe that you could actually sell your condo at $179 sq/ft or ~$380K when nothing in the complex has even come close to it. Your scenario is not only used for condos, but I have seen it a lot in the suburbs of Houston.

Personally, I think he's actually being generous with his appraisal coming in at $305K based on my own experiences.

Jerry and Jon,

I never said that I was looking for $179 per square foot for my unit. The basis of my argument is that the appraisal was flawed from many angles, and the valuation was not fair compared to what is going on in my neighborhood. I completely understand there is an adjustment factor for square footage, but going from $179 per square foot to $143 is not believable when I have two additional bedrooms, 1 additional bathroom, 757 additional square feet and one additional parking space. 

Look at it this way. I haven't mentioned this in this thread yet, but there were a few additional points that I brought up on my appraisal dispute:

First, there were a total of four comps on my appraisal. Two were for the two units next door at $179 per square foot, one was a 1/1 on the market about 1/4 mile away for $157, and a 3/3 with 2600 square feet that sold recently for $157 per square foot. Explain to me how my appraisal comes in at $143. Using the square foot logic, my unit should be between $157 and $179. 

Secondly, look at the third comp. Why is the appraiser using a 1/1 at $157 per square foot as a comp, when the two units next door to me with a similar footprint sold for $179 per square foot within the past three months? Not only is this unit still on the market, but it should have zero bearing on my property value. 

Originally posted by @Jesse T.:

It looks like you got a good purchase price, but it may be part of the reason your appraisal is lower than you expect.  It sold for 50K under the appraised value.  

Condo values can be pretty volatile, so the appraiser probably erred on the side of caution.

New construction can help values of existing single family homes, but it can create competition for condos - especially high end condos.

The 3rd bedroom can be very valuable in a SFH or TH. However a good segment of the condo market is singles or couples without kids. A loft may work for a guest room, so the gap could be quite a bit less than you might think.

 I disagree with the comment regarding the price I purchased the condo at. When I had my condo appraised on 2013, it came in right at $250,000. Comparable comps in the area were right around $120-$130 per square foot for a 3/2 condo. My condo isn't high end, but I would consider it the middle of the pack. The nice ones around here have balconies, crown moldings etc as indicated by the $530,000 asking price for 2200 square feet. 

While I understand the volatility part, Houston is a special because the three story townhome/condo is ubiquitous here. If you live anywhere inside the 610 loop west of downtown, I would bet that 75% of the homes are condos or townhomes. 

Originally posted by @Carlos Hernandez:

The appraiser should include at minimum 1 comp that has the same square feet and 1 comp that has the same bedroom and bathroom count as the subject. These may be from another development if there are none from the subject's development.

The lender will require at least 2 sales from the subject's development regardless of size and bedroom count. That is most likely the reason the 2 smaller comps were used.

If lender is conventional then the appraisal will be reviewed by an Appraisal Management Company. After the AMC decides that they are satisfied with the appraisal they will send to the lender. At that point the lender will review. If they don't have any issues with the appraisal then they will pass to the borrower. Conventional appraisals are reviewed twice.

Carlos,

The reason why a 3/2 in my complex wasn't included was because I have the only 3/2 in my complex. Even then, the comparable square footage 3/2 the appraiser used was a fairly nice unit. Nicer than mine, but the price was adjusted to around $345,000. 

I just don't understand how two recent sales next door to me at $179 won't prop up the value of my unit higher than $143 per square foot. That's a huge difference. 

Originally posted by @Andres Piedra:

Appraisals can be really annoying. Did the appraisal impact your goal? If not, I would not worry about it right now. If you were to get another appraisal 180 days from now, it will likely look very different. If it did impact your ability to acquire your cash-out-refi, then I would contest it with the lender (they hire the appraiser) and provide them data, not just a complaint. Show them other comps you would have used and share your argument you shared above.

 If I choose the 80% option at $305,000, I'll be able to cash out $57,000. That's beside the point though. I'm trying to cash out fair value, and this isn't indicative of fair value. To address the latter point you made above, below are the points I made in an email I just sent my lender. I'm going to call him tomorrow to discuss this a bit further:

1) HOA is $347 a month for my unit, not $246. The $246 value if for
the smaller units. Not that this really matters, but it's a
technicality more than anything and probably doesn't have any bearing
on the value.

2) On page two, the report states that the growth for my neighborhood
is stable. It's rapid. If you look outside my window, there is
construction everywhere. Even today, they just broke ground on a
townhome complex across the street from my residence that are prices
at $530,000 for 3/3.5 with 2400 square feet. Look at all of the units
around my complex for sale right now on Zillow. I don't think there is
anything for sale for less than $160/sqft but most are $180+.

3) On page two near the bottom half, the report states that the ratio
of spaces to units is 1:1. This is not true. Units 8 through 12 have
two spots. The rest only have 1.

4) The valuations given on page four are insane. Look at the
adjustment he gives me for square footage relative to #12 and
#13. You're meaning to tell me that 757 square feet of extra living
space is only worth $34,065? That's $45 a square foot. THAT IS
LUDICROUS IN ITSELF. A $6,000 adjustment for two extra bedrooms? And I
mean actual bedrooms. Unit #12 and #13 are lofts and don't even have
complete walls or doors.

5) Look at the fourth comparable on page 8. The appraiser's adjustment for 757
square feet extra of living space is $45 per square foot again. How is
this possible when that unit sold for $157 per square foot, while the
units next door to me sold for $179 a square foot?

6) MORE IMPORTANT THAN ANYTHING, he is assessing the value of my
condominium at approximately $143 a square foot but the lowest cost
per square value sale out of his four comps is at $157. The units that
are physically in my complex should have the most bearing, and even
those are way above the $157 per square foot value of the other two
condos. In other words, I want this guy to explain to me how mine
isn't at $157 per square foot at minimum taking into consideration
that those units outside of my complex are not as nice as mine.

Originally posted by @Fred Heller:

Appraisals are not an exact science unfortunately. They are estimates and the estimate can vary from appraiser to appraiser. It certainly sounds like you have a strong case to appeal the appraisal to the lender.

And I agree with the post above about smaller properties having a higher price per sf. I have seen that with every comp I have ever done. The smaller condos have a significantly higher price per sf than the bigger ones.

Originally posted by @Wayne Brooks:

Smaller units Will have a higher $/sf value. Should yours be 25% lower, I don't know. I take it there were no recent sales of units similar to yours?

Fred and Wayne,

With approximately 800 square feet of additional living space, two extra bedrooms and an additional bathroom, I could understand maybe $20 a square foot lower, but not $143 when those units next door to me sold for $179. I understand the logic of small units having a higher square footage value because that's fairly universal, but this is ridiculous.

What's even worse is that I have actual bedrooms. The units next door to me that sold for $179 per square foot are lofts that don't even have walls or a door.

I don't know if this is the correct subforum to post this in, but I can re-post it if needed.

To preface, this conversation, I am located in Houston. It's boom time right now in this city, and property values are on fire. I purchased a condo as my primary residence in July of 2013, and I am looking to complete an 80% LTV cash out re-finance. I purchased the property for $254,000 with a 4.125% interest rate. It's a three bedroom, 2.5 bathroom unit with 2,127 square feet. I just received the appraisal back at $305,000 with an offer to re-fi at 3.875% with no closing costs.

What really peeves me is how inaccurate the appraisal is. Two of the comps on the appraisal are for the two units next door to me in the same condo complex that both sold within the past 6 months for $179 a square foot for 1,402 and 1,370 of living space. On top of that, both of these units are 1 bedroom, 1.5 bathroom units. As I stated before, mine came back at $305,000 which places the value at $143 per square foot, but I also have 3 bedrooms and 2.5 bathrooms. How can there be a $36 dollar per square in the appraisal value?

Originally posted by @Ronnie Sparrow:
Hello I am a landlord in the Spring area. Can you do comparables via a realtor? Do you have access to the MLS for comparables?

Won't realtors usually charge for this service?

Just curious, but do we have any landlords in the Houston area? I have a property that I am currently assessing a rent increase, and I wanted some opinion from people in or around the area.

For those of you who are familiar with Houston, I have a 3/2.5 in the midtown area of Houston and this year alone, my assessed property value went up 11% after a protest. The real estate market is currently booming, and I need to increase rent but I'm not sure how much to increase it by.

I was thinking somewhere around the neighborhood of a 10% increase, but I was curious how much other landlords in this area increased their rent. Any advice would be helpful.

Thanks.

Originally posted by @Brant Richardson:
I would stop worrying about what Zillow thinks of your apartment, I'm sure it is appreciating just as much as apartments in buildings nearby.
If the county has underestimated the value of your apartment becasue they think it is a 2 bedroom I certainly would not do anything to correct it. When they overestimate then people try to get it lowered.

Brant,

While I agree with you, I have one other concern. This unit I am living in will be a rental in the future, and I know a lot of people use zillow as a reference point when it comes to monthly rent. Since the estimated rent is lower than what it should be, wouldn't people use that as an anchor? Psychologically, it's going to weigh heavily.

Retrospectively, what would I do if I ever chose to sell the condo? If zillow estimates the property at $263,000 realist comps value the property at let says....$300,000, I feel like that was detract a lot of potential buyers from even viewing or bidding on the property.

Let me preface this by saying that I realize zillow zestimates aren't exactly the most accurate valuations metrics, but my issues are still puzzling.

I am located in Houston, and 2014 appraisals recently were released. Due to our strong economy and the booming energy business, a lot of people's home values have risen 20% percent or more, and I believe the average for the city was 17% this year. For instance, my assessed value for property tax purposes went from $229,000 to $273,000. Currently, my residence is a 3/2.5 condo in an 18 unit complex. So now to the questions...

1) I am seeing an odd disconnect on Zillow. My unit is the nicest unit in the complex, yet my property value has not gone up a penny according to Zillow. In fact, it has actually gone down about $1,000. When comparing other units in my complex, a lot of their zestimate values have gone up anywhere from 2%-4% the past month. I don't understand why this is happening. Not only is my unit the largest one in the complex, but it has the nicest view of downtown, and it is the ONLY unit in the complex with actual bedrooms. Since the condo complex is a loft layout, all of the other units have bedrooms without doors or a 4th wall.

2) I am failing to understand why my property value is so low on zillow with a HUGE disconnect compared to the county's appraised value, and this question ties partly into the issue pointed out above in issue #1. I'm looking at my county's property tax records, and there are 1/1.5 layouts with 1500 square feet appraising at $209,000. My unit is 2,060 square feet with a 3/2.5 layout and I actually have walled bedrooms and it is appraising for $273,000.

When comparing this to Zillow's zestimate, the $209,000 piece of property has a zestimate of around $250,000 while mine has a zestimate of $263,000. To me, this is rather odd.

3) Lastly, I had a question about the actual appraisal metrics used by the county. According to county records, my unit is a 2/2.5 but I clearly have three bedrooms in my unit. Why does the county believe my unit is a 2/2.5, how would I go about changing it, and would it be worth changing?

I have a question to ask you folks. I am in the process of putting in an offer for a foreclosured property to rent out, but I am running into issues on the financing side.

On this property, I am planning on putting an offer in of less than $50,000, and the repairs will be around $25,000. I just spoke to my lender, and they informed me they would be unable to underwrite this loan.

Apart from hard money or an all cash purchase, what options do I have?