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Cash out, appraisal, and tax assessed value.

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Shane Johnson

St Paul, Minnesota

Nov 19 '12, 11:27 PM


Hey everyone, got a few questions based on a property I just bought back in August. Basically, I got a steal of a deal. Brick home built in '41, furnace and water heater and AC all less than 2 years old, roof less than 8 years, brick recently tuck pointed etc. All mechanical in good condition. It is a 2/1 with a 1 car on a nice city lot in a desirable suburb outside of the Twin Cities, MN, just into Wi. It has a full staircase up to a full attic with large side dormer(for walk in closet or bathroom), and full poured basement.

I intend to finish the upstairs attic into the master suite (bathroom still up in the air as it will be a huge POW for the buyer, but will cost quite a bit to get it done up there) and finish the basement with a full large bathroom, laundry room, living/media room, and an office/non-legal bedroom with a full walk in closet. Right now it is already plumbed for a shower and toilet and they function, but will need to be moved. OK - so with that info...

After educating myself quite a bit on here, my game plan is to finish these things while the loan seasons, and cash-out refi this house to pull out some equity to purchase another property. I bought the house at 82k conv loan 5% down (78k financed), 30 years @ 4%, tax assessed value was at 160k back in the boom (just for simple reference) right now as a 2/1 I believe ARV to be about 115k, maybe a hair more. Finished as a 4/2 or 4/3 I hope for it to appraise for at a minimum of 130k (based on comps I am very hopeful for more). If i can get it appraised at 130-140k, my idea is going conventional @ 20% equity to lose the PMI to help offset the payment increase, and cashing out the difference. Any advice or input on this game plan?

Lastly, I am paying taxes on 160k still. On my first house, I called my city tax assessor when my taxes were bumped up in 2011, and I was able to get my tax assessed value lowered back to 2010 value. Upon further review, my tax value has been lowered over 20k, but the amount due has been the same since 2010, those sneaky bas.... The tax value is still 8k+ over what I actually bought it for. My question and idea is, call and ask to have my house assessed to have the value lowered to possibly lower my taxes, before I make the improvements. If I were to do this, would his hurt my future appraisal for my potential cash out refi?

Any advice and input is appreciated. Thanks!



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Nov 20 '12, 06:44 AM


How did you get an investment loan with only 5% down? Do you actually have a lender that will go to 80% on the refi? That's higher than is common. 70-75% would be more common.

Are you getting permits on this new work? That's typically where assessors get their information about the property. They factor that into a new appraisal. There is usually a notice sent once a year about the valuation and the appeal process. Timing varies from state to state and county to county.

Do you have solid comps to support your estimated value? What about the bad comps? You cannot count on an appraiser using the best comps, you just hope they don't use the worst. Document all your work with pictures and receipts and give those to the appraiser. Actually be there to meet the appraiser and discuss the work you did to the house.

Aren't you going to have to upgrade the HVAC and electrical for all the new space?



Jon Holdman, Flying Phoenix LLC


Shane Johnson

St Paul, Minnesota

Nov 20 '12, 08:16 AM


@Jon Holdman ,

Thanks for the reply. It is not an investment loan. Owner Occupied, Conventional loan. I am currently living in the house, with a buddy renting the spare bedroom. My idea is to refi as an owner occupied loan, either FHA (I was reading up to 85% LTV? or Conventional at 20%LTV, to drop the PMI).

As far as permits, I have been told not to pull them (by uneducated or under the radar types) but after reading how it will affect appraisal, and how I could be made to demo the new contruction, I intend to pull permits and have it inspected properly. I cant afford to dump $20k into this place, then have to gut it. As an aspiring REI I welcome risk, but not that much risk :)

I do believe I have solid comps to support my numbers. However, the prices have jumped quite a bit with the shortage of foreclosures and short sales not needing rehab. SFH that were going for 120K are going for 130-140K in turn key condition. I have access to not only active MLS listings, but also the Solds, in the last year (focusing on last 3-6 months). Most of the houses on the MLS that are cheaper need work and are ugly. The other houses in my price range or slightly cheaper, need major updating, and any 4/2 4/3 with updating are listed higher. I think there is a great niche at the 140-160 range for a fully updated house, aimed at FTHB's. I feel very confident my house is worth at least 115-120K as it sits. I am in a very desirable historic downtown, of a historic logging community, great schools, next to parks, 3 minutes to interstate, 30 minutes from Minneapolis, etc. I bought here (twice - my houses are back to back) for a reason. :) The strategy is cash out, to buy another, but this property will be a BAH. The rental market is hot here. I believe I can get about $1000-1100 a month as it sits, and upwards of $1400-$1500 a month completed.

Great point on the HVAC and electrical. I definitely intend to update the electrical. Old fuse panel, with only one switch in the basement, and 5 lights on individual pull switch style lights, and only one light in the attic. Can lights and outlets galore is the idea, probably also a slim profile ceiling fan in attic. The furnace being of decent size, high efficiency, and only 1 year old, I am praying that it is large enough to handle adding the basement and attic. If not, that will definitely take another $2500 away from the bottom line. Thanks for the motivation to go home and figure out the CFM of the furnace and see if it will be able to handle all the new area. Basically the house is 1050 sq ft on the main floor, and I should have approximately 850 fin sq feet down stairs, and an approx 700 sq feet finished upstairs. As far as overall volume of air though in the attic, the half/knee walls will reduce size of attic and the upstairs attic is obviously a triangle shape, not a cube, so if i remember my 9th grade geometry, this is half the volume of air per floor sq footage.



Shane Johnson

St Paul, Minnesota

Nov 20 '12, 08:22 AM


Just to add- with the knee walls it will obviously not be a triangle, but you get my point, with the roof taking away some of the volume of the room, in comparison to a normal main floor or basement "cube shaped" room



Simon Campbell

Foreclosure Specialist from Miami, Florida

Nov 20 '12, 03:34 PM


Another problem with selling renovated properties is that sometimes the property becomes overpriced. Unless the property was purchased at a very high discount, you typically will not recoup 100% of your investment dollar.

Remodeling Magazine states these facts: An attic bedroom returns 72.5%. A basement remodel is around 67%. A master suite addition will get you a whopping 59%.

Any seller needs to know the market value of the property "As Is", "After Renovation" and the cost of the renovation to see if there will be any money in the proposed renovation.



Simon Campbell, Bankforeclosuressale.com
Website: http://www.bankforeclosuressale.com/


Shane Johnson

St Paul, Minnesota

Nov 20 '12, 03:56 PM


Thank you and i agree completely. However, Heres my problem with those numbers. If I am doing most work myself, the cost of investment is much lower. I can only assume those returns are based on construction work done by contractors? Also, I believe the return to be much higher on a master suite or attic bedroom because my home right now is only a two bedroom one bath. Adding a master suite as well as living space in the basement is going to make this house much more desirable for a typical family. One of my major selling points as far as rental or when it comes to selling the house is the fact that I am in a very family-friendly neighborhood with churches schools,shopping, a beautiful river for recreation and the interstate all within a stones throw. I appreciate the motivation to further inspect my numbers and analyze what makes more sense, ether Investing more to create more living space or investing the minimal amount. Overall I feel like this house needs to at least be a 3/2 to make it desirable and greatly increase my renter and buyer base.



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