All Forum Posts by: Stephen Bruce

If they are paying rent there is a verbal lease.

Give them the 30 day notice. Make sure you  can prove they got it. 

If some need more time you could begin renovations on some of the units while still collecting rent on the others.

You could even ask for higher rent in exchange for anyone needing more time.

@Stephen Bruce, signed estoppel for each unit as part of due diligence under the sales contract.

You need to use these estoppel forms to verify all the details about the oral rental agreement with each tenant. The tenant needs to sign these so that you have certainty that the information you're being told is accurate.

If you don't, the tenant could pull out a written lease after you buy the property or claim the deposit money is more than you were told or that the tenant owns the appliances.

If you are going to be successful as an investor, you must learn the law. And the best time to learn it is before you need it! I'll have a book coming out this summer to help with that. In the meantime, I highly recommend "Every Landlord's Legal Guide" by NOLO. It's the best $30 you'll spend as a new Landlord.

I believe the law in SC is that you give 30 days written notice. You can use your favorite search engine for "terminate lease south carolina" and do some reading. Search "sample lease termination letter" and get examples of what the notice should look like. If you learn how to use basic searches online, you can find answers to anything you need.

Yes, I have looked at hundreds of appraisals of 2-4 units. That's what I do for a living, for the past 25 years. I've even completed a few of them myself. I'm very familiar with Fannie and Freddie guidelines and USPAP. Bottom line - It's up to the appraiser to decide which valuation approach to hang his hat on, regardless of the GSE guidelines.

Yes, but what is required may differ from what I, as an appraiser, find meaningful, credible, or reliable with regard to value. I can tell you from my 27 years of appraisal experience, in my market, the income approach was significantly useful only a handful of times, for a 2-4 unit property,  and mainly as support for the sales-comp approach.  But, that is relative to my markets and specific assignments. But, with lack of reasonable quad comps, the income approach may become more reliable and/or reasonable for the appraiser. 

One problem is the lack of reasonable rental data for similar units/properties. There are typically a lot more variations in unit characteristics with 2-4 units properties than with larger apartment houses, etc. Then this is reflected in the wide range of grm's. An example is a previous duplex assignment I had which has grm's ranging from $199-$283. assuming market rents of $1,000/mth for the Subject, that equates to a value range potential of $199k to $283k or 40%+

It's a lot more challenging accounting for grm differences than other property differences.

But, once again, this challenge of lack of comps may actually benefit you to the positive. Best way to do that is to explain and "prove" to the appraiser why your property is worth a lot by providing as much facts/data as possible. Give them the ammunition to support their higher conclusion. Your "opinion" doesn't help me defend MY professional appraiser opinion about the value of your property, but if you provide me data I'm not aware of, or haven't thought about, etc, maybe I can justify a different conclusion.

Here's a thread where I posted a more detailed answer to what to do if comps are lacking. I think my post is 3rd down.

https://www.biggerpockets.com/forums/48/topics/1168539-quest...

Usually residential properties up to 4 units are valued by residential appraisers.  5+ units is considered commercial. At all the lenders I have worked for a 4 Unit would be assigned to a residential appraiser. It's up to the appraiser how much consideration to give to the Income Approach to value versus the Sales Comparison Approach commonly used for single family homes. They will typically complete both approaches on a 2-4 Unit. 

@Stephen Bruce

Will you be living in one unit and financing conventionally? 

@Stephen Bruce I have BRRRRd small multi families but the unfortunate part of the equation lies with the appraisal just as the other poster has mentioned.

The bank that I use has an unfortunate contract with a local appraisal firm that I feel does substandard appraisals and has for me ALWAYS brought in numbers that are substantially lower than what I know I could actually get for the property on the open market.

This just happened on an 8 unit that I am doing a cash out refinance on currently where the appraiser came in about $200,000 under where my Realtor and I believe it could be sold for easily. It did cover the amount of the refinance, but barely.

I believe the best thing you can do if this situation occurs to you and your appraisal comes in lower than expected is to be prepared with valid comps of your own to make the case against the lower valuation. I’ve heard sometimes this helps and sometimes it may not.

An appraiser should value a quad as a residential property, since that's what it is. As a matter of fact, many commercial appraisers will not even do a residential appraisal. An appraiser will not look at NOI or cap rates, and many residential appraisers may not know what do with those #'s anyway. but they will look at the GRM's (gross rent multipliers).

But, typically 4 units and under are not purchased for income alone and many times the GRM's of 2-4 unit properties vary significantly, based on many characteristics, and therefore, the income approach is not usually significantly meaningful.

In the absence of reasonable recent comps, there are multiple ways to approach the valuation. I have posted responses about that scenario previously. I can copy and paste one of those previous responses to that point, if you're interested. 

One way of approaching this is to ask experienced local realtors (maybe both residential and commercial) and see what their opinions are. Basically, you want to try and get in the head of any potential buyers and what they may be willing to pay and why. And yes, income would be a consideration, but with little or no reasonable comps, many appraisers may be stumped and take an easy way out, which may, unfortunately, not be the best or accurate. But, it is just those imperfect markets and deals that may have hidden value that others' have difficulty recognizing. That may work in your benefit if/when you decide to sell in the future. 

I personally, would never rely on an appraiser's opinion (other than mine of course), in assessing a deal, but unfortunately, they are an integral part of the financing and that should be taken into account. An experienced local investor or realtor will typically have a better finger on the pulse of a market and potential of a property, than an appraiser. We (appraisers) only reflect the market, based on available data.