All Forum Posts by: Brad S.

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Answer to your question is

FOREVER!  and NO! to the second question.

Once the child/ren moves out, it will get reassessed. This is why people should read or understand the full propositions they vote for! This was being sold on making it easier for wildfire victims and seniors to tfr their assessed value and as usual many people were deceived and didn't understand about this part. I am very upset about this one, and even realtor associations were pushing it!
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Per CA Board of Equalization:
https://www.boe.ca.gov/prop19/#FAQs

1. Under Proposition 19, if I inherit my parent's family home and move into it, establishing it as my principal residence, must I live continually in the home to receive the parent-child exclusion? What happens if I move somewhere else?
   At least one eligible transferee must continually live in the property as their family home for the property to maintain the exclusion. Thus, once the property is no longer your principal residence, it will receive a new taxable value as of the lien date following the date you no longer occupy the property as your principal residence. The new taxable value will be the fair market value of the home on the date you inherited it, adjusted each year after for the inflation factor, and enrolled as of the lien date following the date you moved out.

Thank you for posting this 

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So, unfortunately, you did not get an appraisal, you got a fancy complicated algorithm that spit out a relatively blind  #. While in very conforming homogeneous market with plenty of relevant data, that # may be close to an actual market value, it is much more difficult to do in most markets, especially with a townhome or condo. 

The only way to possibly get a better valuation is to have an actual full appraisal. That way, the appraiser can properly observe and assess your unit's condition, quality, unit location within the project, assess the comp and market data (correct as necessary),  etc, and do the proper analysis with respect to available comps. If that neighbor's unit is an actual model match, or close, my guess is the value should trend closer to that one and even more so, if you could find more of those sales. A good appraiser will not just average the comps, they may do a weighted average or base their final opinion more heavily toward a more similar comp, but more than one good comp is always preferable.

Now with that said, as a longtime appraiser/broker/investor, I have seen some pretty "questionable" appraisals, so it can be a shot in the dark sometimes - unfortunately. But, if you have some pretty undisputable facts (like that more recent neighbor sale and maybe others), you may have a chance for a favorable outcome.

Good luck!

Well, a few things first:

1) What are your specific long term goals - how much cash flow, what type of properties, how much net worth, plan on leaving job, etc?
2) And what is the timeframe for those goals?
3) What is your current financial position, not including the house? Steady job/work, that you both enjoy, would you be able to buy more rentals soon on your incomes, etc?
4) Have you run the #'s on any potential properties you would buy, if you sold? What are the returns as compared to your CA house, etc 

I don't think there is a right or wrong answer, only an answer that aligns with your goals and plans, but some other things to consider, in addition to the things others have already posted. 

* Low Property Taxes - You are locked into a below market property tax base. Your current property taxes are based on about half of the current market value, since your tax base value is set when you bought the property. And you can actually accurately forecast your future property taxes, since the assessed value can only go up a maximum of 2%/yr. Basically, you are "locked" into below market property taxes as long as you own the house (assuming prop 13 remains intact). I have rentals in other states worth about 1/2 of your house with higher taxes !

So, if/as rents go up, your prop taxes will increase much less proportionately and your cash flow would increase quicker. And if you did chose to move back to the CA house, you would still enjoy the relatively low taxes. Example: If you sold and decided to come back and were able to buy a CA house for 1mil, your taxes would be based on a 1mil assessed value, or around $1k/mth, probably about double what your house taxes would be if you kept it.

* You have the opportunity to add an adu and immediately increase your cash flow. You could probably do that with a HELOC and my guess is you could double your cash flow. So, basically you have the opportunity right now to finance a new rental without purchasing another property! You have plenty of equity to do it. Essentially, if you built the adu with a HELOC, technically, your return would be infinite, since you should be able to finance 100% of it! For example sake, let's say it costs you $200k to build an 800sf adu (2bed/2bath), my guesstimate is rent could be around $2,750/mth. You may be able to find a better rate, but I have a HELOC at 9% at the moment, so that equates to $1,500/mth [($200k x 9%)/12], interest only. There will be some nominal increase in your prop taxes and possibly your insurance, but that is an additional gross cash flow potential of $1,250/mth ($2,750-$1,500).

So your total potential gross cash flow is around $2,250/mth+ ($1,250 for adu + $1k for sfr). Of course that doesn't take into account reserves, etc.  

So, that equates to roughly a 6.75% [($2,250x12)/$200k] gross return on the potential $400k cash you might walk away with from the sale of the house. Sure you could probably find investments, where you move, to produce that return, but you wouldn't have the "locked-in" prop tax base value, the potential CA appreciation, a house in an area/neighborhood you know, etc.

A lot to think about, but no bad or wrong answers! Congratulations!

Quote from @David Moore:

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $61,000
Cash invested: $17,000

This is my steal of the year...got this in a sleepy summer market. 3 bed/2 bath in really nice neighborhood. Seller had started for sale at $89K. House has a couple oddities...upstairs bathroom barely 6 feet 6 inches height. No garage, but off street parking. We are putting about 2K into it, and locked a renter in for 18 months at $1100.00 a month. Just loving this one. My banker was thrilled...they said their appraisal came in at $106K, meaning I have over 50% equity day one. Wow, just wow! We will add central air and new furnace, and electrical panel in 2024 or 2025...so some upgrades needed, none urgent.

What made you interested in investing in this type of deal?

We had been monitoring this property, negoatiating with the seller over a period of weeks.

How did you find this deal and how did you negotiate it?

Our MLS Agent, and on realtor.com. This property had a couple small oddities about it, and I was quite surprised it sat on the market. We held firm at 61K, and even were told our bid was outdone by another buyer. That buyer cancelled contract on the inspection report. Asbestos fear can be a great friend. The inspection report, which our agent got us, said ceiling tile could be asbestos. We have an asbestos contact, who told me what to look for in tiles. We learned they had zero asbestos

How did you finance this deal?

Our local lender, MBT bank. We had to put 25% down, but the lender included the closing costs.

How did you add value to the deal?

We repaired from step and rail, and replaced downstairs toilet and shower. We also repaired some gas lines. We will be adding upgraded electric, and heath/central air in the future, but no need to now.

What was the outcome?

We got a great renter, thank you Lord, for $1100.00 a month for 18 months

Lessons learned? Challenges?

If you have a crappy acquisition, the next one can be a gold mine....keep looking, keep praying, keep trusting.

 Great job @David Moore!  Congratulations!

A bunch of lessons in this one:
* Like you said, a bad deal can easily be followed by a great deal. One of my favorite sayings is,  "The deal of a lifetime comes around once a week!"  credited to Dolf de Roos
and you proved that is true!

* Another lesson - stick to your #. If your underwriting is solid and it works for your plans, than your # is good. If a seller doesn't like it, then they can move on if they have better options. Or, as in your case, it may come back to you. Either way, you don't want to take on someone else's liability, you only want your next great potential!

So, here's the thing. most reputable, competent appraisers aren't doing hybrid appraisals. At least, that is my highly biased opinion based on the many responses and posts I have seen on the appraiser group postings I have read. So, typically you will get an appraiser who is getting paid very little to very quickly do a half-fast job on a property they have limited information about. And most will be very conservative, since they have limited information on the property. They don't know the condition, quality, if the current bed/bath count or gla has changed, the finished basement sf, etc. So, if you think you have enough mitigating factors that would significantly assist in a full appraisal, you may benefit from paying for one.

What was the hybrid appraisal's final value?  and what do you think it is worth, and why?

Also, can you dispute it? Do you have better comps or other factual data that the lender can present to the appraiser explaining why they are off?

What kind of commercial property is it?

I will tell you that $650 is very low for even a basic commercial appraisal. Typical straight forward small commercial appraisal may be around $1,250-$1,500ish, in my world.

@Firoz K.

Your post reminds me of one of my favorite quotes.

“Whether you think you can, or you think you can’t, …you’re right!”

——Henry Ford

First you decide on what you want out of the deal (i.e. specific return %, profit, etc). Then you create your LO with that in mind. It may read something like "contract price to be determined at time purchase option is exercised, by an appraisal performed by an independent licensed certified appraiser with local market competence. Contract price not to be below current agreed value of $$$$. In the event the appraised values is below the minimum value of $$$$, Seller has the right to cancel the purchase contract or Buyer and Seller may choose to negotiate a different contract price."  etc, etc, etc...

Basically, you decide how you want it to look at the time of the potential purchase and you form your contract based on that. And you may want to have an attorney assist with that. I am not an attorney and don't play one on TV and don't rely on what I say.

Ok, so after re-reading your post, here's a little more to the point.

*  In my experience, a typical lease option is done by negotiating a CURRENT purchase price with the seller, based on today's value (not to be confused with AT today's value). So, you may negotiate a $90k purchase price for a $100k property. And you should learn how to determine your own current values. That's where the skill in RE investing comes in. You can get a current appraisal if you want, but that costs money and may not be as accurate as you want. And if you determine it based on a future value, you defeat the purpose of finding a deal today and may find it challenging dealing with a seller whose circumstances have changed, especially when their property may have doubled in value as market conditions have changed (like the past few years). 

The short version scenario is generally this: You find a motivated seller who wants cash flow or have their monthly obligations covered, you negotiate an option to purchase the house for $90k (current value is $100k), to be exercised within 2 years, and also negotiate leasing the house for $1k/mth until then. Then you find a tenant/buyer (t/b) to agree to lease the house for $1,300/mth taking care of all the maintenance, etc. and you do a separate option for them to purchase the house at an agreed price (see 1st paragraph above). Then the house appreciates to $120k and you qualify your T/B to purchase the house, and exercise the option to purchase the house at $90k based on closing the sale to the t/b at $120k. That gives you a $300/mth spread until you get a $30k gross profit at the time of sale.

If this doesn't sound familiar to you, you need more education on L/O's

Some good suggestions already on the previous posts. And as always, it depends on your specific situation and goals (near and future). You can buy in many markets and do well (rent and value-wise), if you buy right and/or implement an appropriate strategy - even in CA. 

Anyway, my 2 cents is not to be overly concerned with the area being readily accessible via flying or driving, as long as it meets your investing criteria and potential. The most important part is a trusted team. Many of my out of state (oos) rentals over the years, I have seen very few times or never. I have learned how to find good management or change bad mgt when I need to. But, personally, I do not want to be "hands-on" with my long term oos rentals. I had purchased, rented, rehabbed, and sold some oos rentals that I owned for almost 20 yrs, that I had never seen or been to the area. The trusted local professional and the data is what is more important to me. I can get a lot of insight from available data. 

Also, I have had bad local management and vendors (contractors, etc) , in CA, in very close driving distance, which only made things minimally easier. People were the issue, not the location.