All Forum Posts by: Mike Nuss

@Chris Clothier your pull quote is exactly how a good reporter incites the audience. 

"A study by a company that analyzes appraisals to reduce lender risk found that 39 percent of more than 300,000 appraisals contained property quality or condition ratings that conflicted with previous ratings of the same property."

The system is flawed for these types of inconsistencies throughout the appraisal industry and even down to the individual appraiser himself. 

Appraisers use a system called UAD (uniform appraisal dataset). It's one of the great "benefits" of Dodd Frank. This is a 1-6 rating system for quality and condition. A C1 for condition would be new construction. A C6 is a tear down. A Q1 for quality is the top quality custom built residences. A Q6 is like a cabin in the woods. The problem is each increment has about a paragraph of explanation with a lot of room for subjectivity. A 4 in one appraiser's mind may be a 5 in another. 

I had a conversation with an appraiser friend of mine who does a lot of volume. He's been talked to by the state recently because his comparable were rated as a 4 or 5 in one report and then that same comp is rated as a 5 or 4 in a separate report. 

There's too much subjectivity in "rating" the condition or quality of a home and that gets even more "gray" when factoring in the fact that comps are being "compared" to the subject. 

So if your subject is a 4/5, but closer to a 4 and you use comps that are all 4/5 and call them all 4 because the subject was called a 4. Then in a separate report down the road the subject is a 4/5, but called a 5 because it leans closer to a 5. Then you use some of those same comps that are 4/5, but call the same comp as a 5 when comparing it to subject #2, even though you called it a 4 when comparing to subject #1.....it now becomes a huge red flag in these measuring systems that lenders are using. In reality it's a comp that is better than a 5, but worse than a 4, just like the subject was in both cases. However, the final call on the subject gave influence to the final call on the comp. It may look and feel good in appraisal #1 in a vacuum. It may look and feel good in appraisal #2 in a vacuum. But when you put those two appraisals together glitches start to happen. 

In reality we all know properties can have aspects of a 4 and of a 5, but at the end of the day you have to call it a 4 or a 5. Well, real estate doesn't work how computers say it should work and how automated value machines need it to work. 

I hope this makes sense. Under standing the disconnect between appraisers, realtors and the reality of the market place gets me all riled up sometimes. 

@Robert McEachern call Kyle Pearson at Pearson Advisory. Kyle knows RE tax law in and out and he's close to you in Bridgeport.

We talked about structuring seller finance deals by basing the down payment on depreciation recapture just like this at one of our recent meetings. It's a good strategy but if the 40k dp becomes a deal killer, as offered above, structure it as a long term master lease. You already have all the details worked out. A simple switch of agreements and you accomplish the same thing. 

@Garlynn Woodsong I definitely agree there are a bunch of pockets that will be seeing better walkscores with the comp plan changes occuring and Metro's forced density. Multi family housing has been dominating the building seen the past two years with more than 60% of new homes in the metro region and more than 65% in Portland. 

I'd love to see/hear more about your apodment project and single family to 3+ unit conversion. Those are not easy projects. 3+ units bring on the commercial code with fire sprinklers and what not, but when rents are $2.00+/SF those projects can pencil. Plus cap rates in the 4-5 range can bring some substantial equity along with the cash flow. Portland is ripe for just this type of development.

@Garlynn Woodsong your strategy definitely is a solid one. All of our hold properties are located within close-in high walk score neighborhoods. I'm interested in how you decided a walk score of 70+ was a parameter for you. I think most of our properties are in the 82+ range so that just seems a little low, based on all the other factors you mentioned. What neighborhood association are you active in?

I'll be there. 

Welcome @Brandon W.

Building an ADU is a fun and exciting project. They can also bring in some serious cash flow considering the low interest environment right now. I'll be at the meet up in a few weeks and would love to hear more about that project. There are some crazy ADU's being built ($200,000++ in cost) in the inner Eastside. Tiny house movement is in full on hysteria mode these days.

I'll be there. Hearing @Jay Hinrichstalk about out of state rentals always makes me happy for staying local. 

@Brad F.let us know how much City of Portland bills you for the use of that pic :)

I'm in assuming I can make the final planned time. 

@Corey WestermannIt sounds that you're making offers on listed properties. That in and of itself is a problem. You're fighting an uphill stream there. Take a look at the buying pool....multiple investors with cash, 1031 buyers with cash, first time buyers with easy financing, migration buyers with cash. That is a very competitive battle so you have to separate yourself. I've sold 4 homes this year. Everyone has been a "pick and choose your offer" proposition. Think of it from a seller's perspective and then try to think how you can separate yourself from your competition? 

Offering more EM with some being non refundable is one way. Making a ridiculously high offer is another way. Getting hard $ pre approval is another. As a buy and hold investor paying a ridiculous high price and/or getting hard $ doesn't make a lot of sense. 

I think the easiest solution to this problem is stop making offers on listed homes. Start marketing directly to sellers and make offers in non competitive (or at least less) situations. 

Listed properties are brain damage. The last listed property I bought was January of 2012. The past 3 years of off market acquisition has been fun, rewarding and truly beneficial to all parties involved. The retail market has a completely different taste to it.

I was recently reminded how great we have it in off market scenarios when offering on a commercial property. We had to increase our offer by over $100,000, remove our financing contingency, make an all cash offer (changing our strategy to buy and refi rather than finance the purchase) and give the seller free rent back in order to separate ourselves from the competition. That simply makes life more difficult. Sometimes the property is worth it, but it better be worth it in order to go through all that brain damage. If we had found that seller prior to it being listed the environment would've been completely different. Less stress, less pressure and a much easier buying process. 

Direct marketing works, it's not for everyone, but it can be much more rewarding that dealing with realtors, over confident sellers and buyers paying too much $ for property. 

@Brandy Scott this is common in Portland. There are a handful of investment companies in town actively bidding at the auction. They protect their investment by purchasing redemption rights prior to the auction. This also gives them leverage against other buyers looking to bid on the same property. I'm happy to answer more questions if you have any. Feel free to call, email or PM.