All Forum Posts by: Brad S.

What @Elias Halvorson said is true in these times especially. But, besides competition, why would I, or any other appraiser want to share my income when business is generally scarce at the moment. 

And that's the key right there - your best approach is to come up with ways to add value to a prospective supervisor. Also, it would be smart to keep your salary expectations reasonable. 

So, some ideas would be:
* take some additional courses/webinars, etc on how to obtain appraisal business, especially private appraisal work (from attorneys, cpa's, direct from homeowners, hard-money lenders, etc). Many appraisers don't have time or knowledge/skill to go after that type of business and may welcome the help. If you could bring your own work in to an appraisal office, you would be an asset to them, more than a liability.

* Along the previous line - research specific lenders and find those that do "direct engagement." That means that they have a separate dept to handle ordering the appraisals directly and they don't farm that out to an AMC (appraisal management company). Typically those lenders pay more and are better to deal with less hassles. Since the Dodd-Frank Act and HVCC (Home Valuation Code of Conduct) in 2010, most lender appraisal orders are given to amc's, where they may charge the client one fee and pay the appraiser a significantly lower fee, as well as causing other headaches dealing with them. Many appraisers would love to have business separate from amc's.

* Get really good at some of the basic appraisal skills, such as filling out a report form, writing up the basic part of a report, researching comps, calculating adjustments, etc. It is helpful if you could make the supervisor's job more efficient so they could focus on the analysis more than the rote processes involved in the work.

Unfortunately, some of the ways you can bring value require you to develop some experience to add. You may be able to get some through elective classes, but it may also take practice and "real-world" practice is helpful. 

Currently, appraisal work is significantly down, since the refi's are generally non-existent as many homeowners refi'ed when rates went very low during the pandemic. There is some purchase transactions and still private work (as I noted above). 

About 20yrs ago I had about a half dozen appraiser trainees and licensed appraisers working for me. But, the landscape was much different then. I was also working on the inside of a good-sized local mortgage brokerage and had a direct link to their business. So, I stayed very busy then. I would pay my appraisers 50% of the fee, since I was providing all the business and had to review and be responsible for all the trainee's reports. But, when business slowed down somewhat, it got to a point where it was easier and more lucrative to do most of the work myself again, so I did.

Here's some other ideas:
Find a job directly with a large company that will hire and train you while being paid. A large bank/lender, brokerage (Cushman/Wakefield, CBRE). You could see if the Assessor is hiring. I started my career with the LA County Assessor. It was amazing training (1 yr fulltime/full pay training program). I left after a couple of years to do my own thing.

Anyway, hope that helps.

27yr Appraiser here - in 2-4 unit properties, in most markets, rarely is the cost or income approach very relevant (not going to go into the details why). An appraiser is typically going to rely exclusively on the sales comparison approach and hopefully find relatively similar comps to compare the Subject to. 

Unfortunately if there are not good comps available (as you stated) you may be more subject to the appraiser's skill and opinions. The proper way to approach this appraisal problem is (summarized below):

* find reasonably similar comps - find relatively recent duplex sales in the Subject's market area and adjust for differences, based on market response (i.e. how much more/less buyers would typically pay for certain characteristics like size of units and lot, location, quality/condition, etc).

* In the absence of similar comps - go back in time to find any similar comps, no matter how long ago and adjust for market trend differences (appreciation, etc), as well as other adjustments as typical (size, bed/bath, condition/quality, location, etc).

* Go to nearby market areas/neighborhoods and find reasonably similar duplex sales and adjust for market area/neighborhood differences as required - along with the other adjustments.

* Find reasonable 3 or 4 unit (not more than 4, and they can use sfr's, but those are typically not as good for comparison. Then they would calculate an estimated market adjustment for # of unit differences. But, generally, this is not very accurate.

Anyway, there are a few more techniques they can use, but this gives you an idea of how they should go about it.

So, as to your specific question, YES, you can most definitely dispute the appraisal if you think there are legitimate reasons to. The best way to do that is understand the different processes I noted above and then to provide reliable, reasonable, credible, and factual information to the appraiser as to why they should consider other factors. Example: providing comp/s which are updated similarly to yours, but may be older sales or in a different neighborhood, and discussing why they should be used. Maybe providing additional info on other comps they used, that may not be readily available. Like contacting the realtors involved in those sales and finding out some pertinent info that caused them to sell below market value. Example: a realtor may tell you the property needed to be rebuilt from ground up due to bad foundation, or ?

Anyway, the basic idea here is you should provide the appraiser a reason to reconsider there value and analysis and just saying "mine is better than those," is not good enough. You also don't want to "shop for value," by cherry picking higher priced sales to justify a higher value. In other words if you have to find older sales or sales outside the neighborhood just because they have higher sales prices, then you are losing credibility. You need a reason and data to support your position that your property is worth more. Your opinion vs mine (as an appraiser) is only worth the data you can provide me to support it.

I hope that is helpful
Good luck

Quote from @Adam Bijou:

My brother is interested in selling his house to me, however, I’d like to keep the existing 2.9% interest rate on his mortgage. I’m wondering how I can do this without having his loan be called due. I heard this may be a possible by first placing the house in a trust and utilizing the Garn-St Germain act. Wondering if there is any validity to this?Any advice would be great appreciated. Thank you!

Located in: Trenton, NJ 

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My understanding is that technically, No, that would still give the lender the option to enforce the due on sale clause (DOS) and accelerate the loan. But, practically speaking I have never heard of a lender actually accelerating a loan due to a tfr. I have even heard interviews of officials (I think from the Office of Thrift Supervision) where they say they also have never heard of it being enforced. But, there is always that chance.

I think there is a provision in the due on sale clause regarding the borrower keeping the rights of occupancy in the property, if title is transferred into a trust. And there may also be verbiage that the lender should get notice of any change in occupancy. So, technically, getting around the DOS is not that easy.

But, putting the property in a Land Trust, in your brother's name, and then having him tfr the beneficial interest to you at some future date (maybe after letting the lender know of the trust tfr), may help shield the beneficial interest tfr, but technically, may not circumvent the DOS. Also, make sure to keep the insurance in his name, since the lender will get notification of any insurance changes.

So, while it may be possible to do a "shadow title change" through a trust, that may still violate the DOS, but it may not be likely to ever come back and bite you .....but it is can.

Quote from @Zeliang Zheng:

Hi, given high interest rate, does anyone know which market still cashflow after maximum cashout refi, which is 75% of ARV?

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Markets don't cashflow, specific properties do. And are you sure interest rates are "high" now and they weren't atypically "low" before? It's all relative. I'm just kinda giving you a hard time, but it is important to understand these concepts in order to make more informed well-rounded decisions.

Many "newbee" investors may think the past 10+ years or so is how the real estate market/s typically work - relatively low rates with an ever increasing value trend. Markets are cyclical and there is no single real estate market. I am assuming you are relatively new RE investor and this is not meaning to be condescending in any way.

Be clear on your longterm goals, and focus on making moves today that will get you there tomorrow. Typical rule of thumb is: higher cashflow properties are typically less likely to greatly appreciate as compared to markets with higher demand. Higher demand areas have higher demand for a reason - people want to live there, and that tends to put pressure on prices rising as compared to rents and therefore, typically results in lower cashflow.

That said, some of the areas mentioned in the previous posts are interesting, for different reasons. In the current market investors may need to alter their expectations, tweak their strategies, and/or expand their knowledge and skills to keep them on the path to their goals. And there are unicorn properties in every market, if you tune your vision to them or create the unicorn deals. I like the saying that Dolf De Roos says, “The deal of a lifetime comes once a week.”

A property that cashflows with a 75% cashout refi, may or may not get you to your goals quicker.

Quote from @Austin Weber:

@Brad S.

Hi Brad,

I appreciate your perspective. Not every property for sale is a good deal and I think that has to stay top of mind. It’s easy to see a property and want to make it a good deal but if it doesn’t work that needs to be respected instead of trying to force it like you said.

I think there’s a price at which it could work but I also understand that price is pretty far off of the asking price/value and to the seller it likely wouldn’t make sense to sell at that price.

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An asking price is typically just a sign of where a seller's motivation is, but should not definitively dictate where your offer is. 

My perspective comes from a lot of personal experience, including a couple of properties I chose to hang on to for many years, because it would've been more expensive to dump them in the interim. In the end, I would've been happier to have never purchased them in the first place. That's the short, vague version.

Basically, be laser-focused on your end goal and you will get there quicker and more efficiently.

FYI - Here is a historical chart of sfr prices in the Ft Worth and surrounding area. Notice the recent atypical uptick. It's also interesting to notice that there was no significant downturn after the gfc. But, point is it's smart not to bake-in a definite high appreciation rate in the near future - that should be a potential bonus, not a feature.

There are a few basic questions to consider when considering a potential deal:

* What is your purpose ("why") for purchasing this? current/immediate potential cashflow, flip/rehab, longterm equity building, etc.
* Does the Subject property/deal coincide with your purpose or can it be tweaked to?
* Does the current asking price reflect your best outcome or close enough? ..and If not, Is the seller potentially motivated enough to accept an offer that would position this deal to meet your goals?

...this is not meant as an all-inclusive list, just a general starting point.
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IMO - a deal should not be forced into your "buy box" because you are overly motivated for any reason. Those type of deals have the potential to go South quickly and ugly, then they can be an anchor on you.
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This specific deal you mention, does not appear to meet any promising criteria. There is current negative cashflow at the listing price, little potential for upside, a significantly reduced offer price is required just to break-even or significant rent increases and utility decreases. Basically, it does not appear to have a clear, confident path to a positive outcome. The potential return % does not appear to justify the risk. The risk/reward ratio does not seem worth it, there are other less risky places to park your money with better returns at the moment.

Also, as someone pointed out, you didn’t account for property management. Property mgt should be an expense, even if you do it yourself. Otherwise, it’s like buying a retail business and having to work it yourself to make a profit – that’s called buying yourself a job, not a business.

Appreciation has historically been sluggish in DFW, the most recent uptick is somewhat of an anomaly and may be at a relative high point, or lower relative affordability at the moment, which typically translates into pressure on prices. I don’t have multi-res experience in DFW, but I have owned multiple rental sfr’s there from prior to the gfc.

In this business, especially now, you may need to kiss a lot of frogs to find your prince/princess, or turn over a lot of rocks, or any other metaphors that you like.

Quote from @Laura Yazdi:

I have a condo in Los Angeles that I plan to do a 1031 Exchange within the next year. The property is worth approx. $450k and I will have $300k in cash once it is sold to purchase other investment properties. My ultimate goal is cash flow to be able to quit my job (self-employed) and focus on real estate full-time. Do I purchase a multi-family unit in Southern California for maximum appreciation? Or, should I purchase multiple units in other areas around the country and convert them to MTRs/STRs for maximum cash flow? Keep in mind, taxes and insurance costs in California are higher than a lot of areas. All ideas/ suggestions are welcome! 

I assume you haven't occupied the unit in the past 5 years and don't qualify for any of the tax exclusion? 

I am assuming the bank will add you to the mortgage and the deed, only if your brother is still on both. I would do that and have a separate agreement signed with your brother that he relinquishes any equitable interest in the house. Have an attorney draw up the agreement, but that doesn't get recorded, it just goes in your personal files. That seems like the best way to do it. You will still have to have record of the agreed upon transfer price for your tax basis, but talk with a cpa. 

Another way of doing it is your brother putting the property in a title-holding land trust and then transferring the equitable interest to you. The title only shows the name of the land trust and he can name it 123 main st or put it in his name, and the details of the trust agreement are not recorded, so it essentially shields the equitable interest title from appearing to have been transferred. So, the title will show the trust but the trust docs will show the agreement that you are sole owner. Now, this still technically violates the due-on-sale clause, but it isn't likely to arouse suspicion. 

Many years ago, there was someone that had a technique of doing this which didn't violate the due-on-sale. Basically, if I remember correctly, they would put it in a land trust, than have the trust agreement tfr 90% ownership interest to the buyer, while allowing the seller to keep 10%, but the agreement had that 10% revert back to the buyer upon a future sale, or something similar to that. 

But, as always, don't listen to any of us on the interwebs without doing thorough research and consulting with local professionals.

Quote from @Jonathan Feliciano:

Hi BP Community,

I recently read in an article that Cleveland, OH, is one of the few remaining cities with affordable housing. 

To those who have invested in real estate here, what's your opinion on the Cleveland market? Have you made a decent profit / cash flow in this city?

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I have not invested in Cleveland, but I'm going to throw in my unsolicited 2 cents anyway.

Affordable is always relative. If an area is considered "the last affordable city" after the big run up in prices we recently had, I'd be concerned. Basic supply and demand would dictate either supply rising greater than demand or a significant lower demand, or a more-likely somewhere in-between. Either way, it would be concerning to me, as an investor. It would cause me to do some deep diving into specific stats to try and reveal the general story. Like trends in population, business, income, housing supply, etc.

As always it comes down to an investor’s specific goals. Are they looking for cash flow exclusively, moderate to high appreciation potential, or both, etc.

Typically, with more “affordable” markets, you get better relative cash flow but also more intensive management concerns (vacancy, collection, maintenance, turnover, etc) and less appreciation. And to get the #’s most people want, would require more doors (higher quantity), and therefore more time/energy intensive mgt issues. And that is moving further away from “passive.” I, personally, would rather have better quality than quantity, with reasonable nominal returns. But, the real challenge and skill, is in recognizing future opportunity today, or creating it with value-add opportunities.

I, personally, have owned “affordable” rentals in other areas, which appeared to cash flow relatively well, only to sell them almost 2 decades later for a loss or about even. And generally, they took longer to rent, longer to sell, cost relatively similar (maybe moderately less) to repair and rehab as other less affordable areas, and had more turnover than desired.

I also have a good friend/investor who owned over 100 sfr doors in the Detroit area that they were acquiring amazingly cheap, then rehabbing them. He was unpleasantly surprised with the management/collection/vacancy/repairs challenges there were on them, which drastically cut down his returns, raised his stress level, etc, and he had a long difficult time finding an avenue to exit owning them. I believe he did relatively well, but he wasn’t aware of the journey it was going to be.

That said, there are good opportunities in every market and the skill is in recognizing them and/or find those local experts/teams to help find and take advantage of those opportunities. But, if you look at affordable markets just because they are “affordable,” you may look back one day and realize they weren’t as “affordable” as they appeared. It may be like the metaphor of the drunk guy looking for his lost keys where the street light is, even though he lost them somewhere else. Maybe the lesson is to use a flashlight, or someone else’s, and search where your keys are more likely to be or wait until the sun s comes out.

Most seasoned investors will tell you that real wealth is made through appreciation. Ask yourself, do you want a $100k house that is worth $150k in some future time, or would you rather have a $250k house worth $375k in the same time period.

Quote from @John Yoo:

Got it. Hopefully it works out for the better for you. I'm happy to help and even may have a lender referral if you need it. Also, remember, I obviously know nothing about your property or area, so I could be wrong and please don't rely on what I say.  :)  Ok, I just have to put out my disclosure.  :)

Feel free to reach out if you need any help.