Rookie Podcast 25: What Appraisers Look For and What it Means for You with Investor/Appraiser Josiah Smelser

Rookie Podcast 25: What Appraisers Look For and What it Means for You with Investor/Appraiser Josiah Smelser

53 min read
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Here, by popular demand: the Appraisal Episode!

Josiah Smelser – podcaster, two-time BiggerPockets Real Estate Podcast guest, and Certified General Appraiser – is here to answer your many questions, and he delivers the goods.

We played some questions from the Rookie Request Line and touched on subjects like which data and documents you can provide an appraiser, how to challenge an appraisal, and how to keep your emotions in check when estimating After Repair Value.

Whether you’re a rookie who plans to flip, BRRRR, or invest in rental properties, understanding how properties are appraised – and the mindset of an appraiser – is key to coming out on top. So enjoy this episode, and tell Josiah what you think in the show notes at biggerpockets.com/rookie25.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is the Real Estate Rookie Show number 25.

Felipe:
I’ve been to some properties that are way over improved. And it’s really sad because the owner is like, “Well, I put this into it.” The sad response to that is that doesn’t really matter, what matters is what the market is valuing this property at.

Ashley:
Hey, what’s going on everybody? This is Ashley Kehr and I am here with my co-host Felipe Mejia and today he is a little upset because nobody brought up him flexing or his biceps or [inaudible 00:00:38].

Felipe:
Oh my gosh, why are we talking about this? I asked Josiah on the show, I was like, “Josiah, you’re going to leave that out, right?” We’re not going to talk about this time. I’m trying to break that curse.

Ashley:
That was before we started to record and the one thing he wanted to ask Josiah.

Felipe:
Josiah, who is our guest today is an appraiser. He also invests in real estate. And I was really excited to have him on the show because he’s given some great tips on how to actually add value to your property when you’re going to do the burst strategy or you’re going to refinance or even for lines of credit. Part of everyone’s strategy is how do I get my money back, right? I mean, that’s what you’re thinking about and Josiah drops some huge nuggets on how to truly add value to your property.

Ashley:
Yeah. And he just goes through how to actually read an appraisal report and what are the different kinds of formulas? And you’ll find out my new nickname too. So it makes you guys listen. And at the end, he gives actually a really great tip just for buying rental property in general or buying any kind of property for flip whatever, really great tip as to how to find that hidden value and Felipe adds nicely to that tip too.

Felipe:
Yeah.

Ashley:
Welcome to the show. Can you please tell everyone a little bit about yourself, Josiah and let’s get this started.

Josiah:
Yeah, man, I’m pumped to be here. Ashley and Felipe, it’s a bit surreal because I had each of you on my podcast, The Daily Real Estate Investor, before you guys started this and I was actually really excited to see you guys start this new BP podcast and now you’re interviewing me. So this is awesome, man. I’m excited. I’m excited about all the momentum you guys have too. So I really appreciate you having me on.

Felipe:
Yeah. No, absolutely.

Ashley:
Yeah. Thank you.

Felipe:
It’s such a pleasure to have you on man. It’s really exciting because it’s kind of full circle, right? You’ve recorded us. You’ve interviewed us. You’ve had me. You’ve had Ashley. Obviously my podcast did way better than Ashley’s did, we all know that. You don’t have to say it out loud. No, I’m just kidding. I’m just kidding. Josiah now seriously though, can you tell us a little bit of background who you are, what you do, what’s your strategy? Just the whole bi, 30,000 off of you.

Josiah:
Yeah, sure. So I live in Huntsville, Alabama. I’m 39 years old, married, got three small children. My oldest is six, middle is five, youngest is two and I’m an appraiser. I’m a licensed appraiser. I have my certified general appraisal license which means I can appraise both commercial and residential. I run my own appraisal business out of my house and I also have an investment property portfolio. It’s 20 doors worth around $4 million. So each property is worth on average about $200,000. And I built that portfolio using the burst strategy which I discussed on my BiggerPockets episodes that you can go check out if you want that whole backstory but had a lot of fun.
And it was quite the experience building that and also finishing it during COVID trying to go through the refinances during March and April. And that was quite the experience but my goal is now to scale into multifamily. And so I’m excited about this episode though because we’re going to get to dive into all things appraisal which a lot of people don’t understand appraisers. Sometimes I don’t understand appraisers and I am an appraiser, so this is going to be a lot of fun.

Ashley:
Yeah. Felipe and I have been so excited to have an appraiser on and then even more excited when we found it was you because I think it’s even more awesome to hear from an appraiser who’s also an investor. So we kind of get the mix of both sides of it. So why don’t you tell us a little bit of how you became an appraiser and what that process was to become one?

Josiah:
Yeah. So I made the mistake of getting a degree in accounting in college.

Ashley:
Me too.

Josiah:
Did you really? That’s hilarious.

Ashley:
Yeah. Accounting and finance.

Josiah:
I can’t tell you how many people I’ve run into that were accounting majors that completely ditched that profession. And I’m not trying to discourage people currently working in accounting because my accountant is awesome. I mean, I couldn’t do what I do without him. And he’s great at real estate accounting specifically. But I was doing audit right out of college for PWC, big four accounting firm working 95 hours a week and it just completely burned me out. And I didn’t like having to sit in a cubicle. I’m not a great employee. I’m much better working for myself. And I just felt really stifled and kind of cramped in that environment. And so I left that job. I didn’t exactly know what I wanted to go into but I knew I wanted to do something else and I went and spent some time working at an orphanage in Rwanda because I wanted to do something I felt good about. I didn’t feel good about my audit work and so I went and did that for a few months.
While I was working at the orphanage at Rwanda, I got an email from one of my best friends. And he said, “Hey, I just left my boss. I’m going to start my own appraisal business. And I’d love for you to train under me and get your license.” And he had his certified residential license and this was in Fort Worth, Texas. And I said, “I don’t really know anything about appraisal but I love real estate. I love the idea of investing in real estate.” And I had read Rich Dad, Poor Dad and all these real estate books. I had no property at all but I was like, “I like this idea. I like this concept. So yeah, let’s do it.” I wasn’t married, didn’t have a family to support. And so I was like, I can take this pay cut to get this license and learn how to value properties. So that’s kind of how I got going.
And I don’t know if you want to dive into any of that or not but just… And then from there, I ended up upgrading to certify general worked for CBRE, which is many of you probably familiar with that. CBRE is the largest real estate services firm in the world, Fortune 500 company. But there, they had me on the valuation side. And so I was the multifamily specialist on my appraisal team. And so they sent me out to do all the apartments and mobile home parks. And I did that because I wanted to own apartments one day. And that’s kind of where I am in my journey as an investor right now, my portfolio is all one to four family. And I’m now trying to scale in and start buying multifamily. So that’s at a very high level how I got into appraisal.

Felipe:
That’s really interesting. I guess my question’s going to be from there. And I know everyone’s burning to ask the question what really adds value to a property when it comes to appraisals. Where should I actually put my money? I know that when I’m listening to podcasts, I’m fast forwarding through all this I’m like, where’s the good stuff? And then I like reading through people’s notes. All right. At four minutes and 32 seconds, he talks about this, right? So my question to you, man, is going to be, where does that come? Now that you’ve been doing this for a while, where can you prove value in a property to get the highest appraisal possible?

Josiah:
Yeah. So you’re probably going to hear me say this a lot in this episode but it depends, right? So with the caveat you can figure this out but it’s going to depend on your market. Different things are valued differently depending on where you’re located. So if you’re in an area where there’s a lot of basement properties, that’s just a common thing, that’s going to be looked at differently than if you’re here and… I’m in Huntsville, Alabama, if you’re in Alabama and there’s not a lot of basement properties, if you’re comparing one property that has a basement to a property that doesn’t have a basement, those are going to look very different dollar per square foot, right? So the best thing you can do when you’re trying to figure out what will add the most value to a property is find properties that are similar in square footage, similar in bed bath counts and similar in location, as far as like neighborhood and then look at what they sold for and then start looking at the amenities and the differences in those properties.
And it’s never going to be as clean and easy as just… Well, they’re exactly the same except one has granite and one doesn’t. I mean, it’s never that easy but a lot of times you can tell this property was 1500 square feet, three bed, two bath, two car garage and same neighborhood and it did not have granite. There was no fresh paint. It didn’t have stainless steel appliances and it sold for $15,000 less than this property over here, similar square footage, same bed bath, two car garage, same neighborhood without the paint granite and stainless steel.
So you can look at that and say, okay, if I do stainless steel, granite and repaint this, I could bump it by 15,000. Now, how much is that going to cost me? And if it costs 10,000 then you’re getting a 50% ROI on doing that work. And you have to figure whether it’s worth your time and the risk. And you got to figure out how to borrow the money and all that. So always try to figure out how are you going to improve things? And it’s easy like if you’re doing appraisal work in a market like I’m doing my appraisal work here in Huntsville, I can tell you what the best ways to improve your properties are here but that might not apply if you’re in South Dakota or something. So I don’t want to give like, just always do this because you need to look at your market specifically but there are generally some things that you can focus on.

Ashley:
So we actually have in our rookie request line voicemails for you. So I think the first one will actually kind of relate to this question. So this question is from Alex from Pittsburgh, Pennsylvania, how does one determine the greatest value add on a property in a given area? Thank you.

Josiah:
Yeah. So it’s going to be like just what we were talking about. Try to find some comparable sales and if you don’t have access to the MLS, you’re going to need it, right? So call your agent or if you are an agent you can easily pull this information yourself, find someone that can pull some data for you. And anything appraisal, you’ve got to think an appraiser is an independent third party. They’re hired to value this property at market value, right? So you want to always approach appraisers and your appraisal process with data. It doesn’t matter what you feel about the property, it matters what you can prove.
So I look at appraisers like they’re like attorneys that got stuck in the real estate world valuing properties. They got to be able to write a legal document. They could be trying to defend in court and they got to fill it with data. So what you need to do when you’re trying to figure out the best way to improve your property is approach it with data as well and if you’ve got three comps, two of them have granite, like we were talking about the other one doesn’t and everything else is the same, you can look at the price bump you’re getting on both those properties and figure out kind of what that granite’s doing for you. It’s difficult sometimes because you may have several different things going on but you can get a general idea.

Ashley:
And let’s make a point here as to when you talk about comparables, you’re looking at houses that have sold, not houses that are listed and what the listing price is because that property might not sell for that. So it’s important to pull those comps for properties that are already sold. And you can find… I mean, it’s great to have someone who has access to the MLS, like a realtor, you could also go on realtor.com or Zillow and you can actually search on their recently sold and you’re not going to get as much or probably as accurate information as you would getting it directly from the source. But it’s at least a starting point. Is there any other places that someone could find this data that you recommend?

Josiah:
Honestly, not anywhere that’s going to stack up nearly as good to this. This is the best way to do it because you don’t want something that’s not up to date, right? You want something that’s going to be current and let’s just play like you could get the very best data you wanted, you would get sales that happened in the last 30 days, right? You’d get something that’s current. You’d get a property that sold next door last week that’s the same as you mostly square footage, bed bath and then try to figure out the amenities they had. And then you’d be able to figure out what the best ways to juice the ROI on your properties are. I know people are looking for general things you can do. My thoughts on general things you can do, the best places you can spend money is going to be kitchens and bathrooms.
And then another great place all people don’t talk about is easily added or converted square footage with the caveat that I highly recommend you get it permitted and don’t try to sneak that by and then have to undo your work later because you may get through without doing that, right? And that’s not have any negative repercussions but in the one in 10 chance that they asked, did you pull a permit and you didn’t and they make you tear down what you did, it could be a big ordeal. So the properties that we’ve purchased that were distressed and fixed up and had the best experience on creating a ton of equity has been properties that we’ve actually converted square footage on or added square footage to. And so kitchens, bathrooms then adding square footage as what works best in my market. And I would guess that kitchens and bathroom in almost every market’s applicable and adding square footage too. But that’s kind of across the board, I think, something that’s always good to focus on.

Felipe:
That’s interesting because as an investor when I’m looking at a property even before I’m buying it, that’s one of the first things that I’m looking at as well. Like how much is it going to cost me to get the kitchen and the bathrooms up to date? Where can I put my money to get the best bang for your buck, right? I mean, so that’s one of the things that I’m analyzing for sure. We had this next question a lot and I’d really like to hear your answer on it as from Alex in Hagerstown. I hope I’m saying that right. So Alex asks how much information would be appreciated and how much is overstepping and giving them more than they need to know. If you had past appraisals, can we share the comps? And if we’ve done upgrades, can we share what we’ve done and how much we’ve spent on those upgrades? Thanks.

Josiah:
Yeah, absolutely. That’s a great question. So I can’t speak for every appraiser out there but I don’t know. I’ve never heard of any appraiser getting upset that someone offered to send the past appraisal to them. If you have a copy of your former appraisal, you can tell the appraiser, “Hey, I got this appraised a couple of years ago, I can shoot you a copy if you’d like to see it.” Most appraisers are going to say, “Yeah, I’d love to see it.” Because they want to see what was done, what kind of comps were used? Appraisers like data once again, you’re feeding a hungry dog by giving them data.

Felipe:
Hey, Josiah, can I cut you off there real quick?

Josiah:
Sure.

Felipe:
So on my Instagram, I did a live when my appraiser was doing one of my rental properties and he asked me to be outside. I brought all my data. I brought all my upgrades. I brought everything. Can you think of why maybe he did that? I was trying to show him everything after or before and he just asked me to stay outside on IG live. I was like, “Oh, okay. Whatever.”

Josiah:
It’s probably because there’s a lot of… I don’t know who your appraiser is. I have no-

Felipe:
No. I just want to understand because you’re saying most people want to hear and maybe I just got that 1% dude but he’s straight up said, “No, you can wait outside. I’ll be done in 15 minutes in and out.”

Ashley:
Was it during COVID though?

Felipe:
No.

Ashley:
No.

Felipe:
Yeah. I think it was, just interesting he just told me to stay. He’s like, “No, you can just wait outside in and out.” And then appraised for what I wanted, so I didn’t care. But I was like, I didn’t get to do the experience of like I wanted to show him everything I had done.

Josiah:
Yeah. A lot of appraisers, they have financial PTSD from being pushed on by people for values. So probably maybe a reason he didn’t want to do that is he felt like if he had 2000 people watching him do his job, he would be pressured to make something you wanted. I don’t know. I don’t know why he would’ve done that. A lot of appraisers are very introverted. I’m not the typical appraiser, I like talking to people. I like meeting people. A lot of appraisers are kind of introverted people that just kind of want to go get their job done and not really talk to people and they don’t enjoy being on the phone, they don’t like answering phone calls. And so I’ve always tried to understand my audience and give the appraiser data.
I typically email it to them. I say, “Hey, I want to email you the updates I made to the property.” I let them know what I bought it for, when I bought it, the updates I made, I itemize the costs for all that stuff and I send it to them in a PDF. I don’t ever tell the appraiser what I want them to appraise a property for because you’re not supposed to do that. You’re not supposed to influence the value of the property. They’re an independent third party. However, you can also tell them, “Hey, these are the comps I’ve found.” And for those as well, they don’t have to use them. And it’s likely they won’t use them all because most appraisers are going to pull their own comps and go with what they think are the best comps. And that’s what their job is, is pulling the best data.
It’s likely that if you pulled good comps, they’re using the same comps anyway. So now if you find a comp that they don’t have access to or didn’t use and you give that to them and it’s actually good data, they will very likely use it. So a good example of this would be if an appraiser is doing an appraisal on a brand new build and they get on the MLS and they find one sale in that neighborhood because there’s only been five houses built and only one of them has been on the MLS and they can’t get ahold of the builder, the builder doesn’t answer their phone or whatever, they’re going to start looking for comps outside that neighborhood. So if after or if during the appraisal process the builder calls the appraiser and says, “Hey, I’ve got four sales for you.” The appraiser’s going to be like, “Send them over because I don’t have access to those.” You know what I mean?
So another example would be if something sold off market and you’re in a nondisclosure state where the information is not going to be online and you have access to data on a sale, that’s not on the MLS and you can’t pull on public records, then you could get that information to an appraiser as long as it can be verified with like you’ve got something to verify what you’re saying like some kind of closing doc or something to show that it’s legit, they can use that. So you shouldn’t be scared of appraisers but you just can’t influence the value on your appraisal. You can’t do that. You can provide data though. And so that’s what I’ve encouraged people to do is provide data.

Felipe:
So don’t just give your opinion, make sure that you’re providing your opinion with data. Don’t just say, “Hey, I feel like my property is worth this much.” “Well, that is nice that you feel that way but can you prove it with some data.”

Josiah:
You can imagine the most everybody thinks their property is the best property on the block, right?

Felipe:
Mine are, all of them.

Josiah:
Exactly. Yeah, of course.

Ashley:
I want to go back to the introverted thing you said real quick about how some appraisers are. I liked that. And we had Rose Buckley, a home inspector on, I think, it was episode 11. And she talked about… She’s just like, “Get out of my way. This is my routine. This is how I get this done. And I just want to go through the house.” And she talked about people trying to look over her shoulder but she works best when she just goes through, she has this system she does and stuff like that. I honestly would probably feel the same way of like, this is my process and any inspector or appraiser that I’ve worked with sometimes they’ll ask me for information especially the commercial ones but I’ve always found that like emailing the data ahead of time before they even get to the property has I think worked well. I haven’t had any of them complain that I’m trying to push too much information.

Josiah:
Yeah. And commercial appraisers are more likely to ask you for data because there’s not as much public data available for them. Commercial appraising is a more difficult job than a residential. My average residential job probably takes… The drive time takes me more time than the actual appraisal does because what you’re doing is measuring the house. You’re going inside and taking pictures of each room in the house. And if you’ve got a one story, 1200 square foot box of a house, measuring the house may take all of five minutes. You know what I mean? And then going inside and taking your pictures, doing the interior inspection, that may take a few minutes.
So if you’ve got a relatively easy measure on your hands and a small house, the inspection may take all of like 10, 20 minutes but your drive out there may take an hour, right? And your drive back may take another hour and then you got to type the report up. And people often say, “Well, that appraiser only spent 15 minutes at my house.” And you’re like, “Yeah, but they spend an hour driving out there. An hour driving back and an hour and a half typing the report up.” Don’t think that that’s all they’re doing is just measuring your house and that’s it. You know what I mean? But it’s funny because inspectors are always like they’re crawling around and underneath house and doing all this dirty work and they see the appraiser come out and they’re there 20 minutes and leave and they’re like, “I hate you guys.”

Ashley:
I could see that. When you talked about giving them comps for like off market deals or things that might not be available to an appraiser, what about if you own a property that would be a comp and it wasn’t recently sold but you recently had an appraisal on it, would that be something of value that an appraiser would want if you gave them that appraisal from the other property?

Josiah:
Are you referring to like residential or what…

Ashley:
Yeah. Residential or commercial if I owned two properties and you’re coming to appraise property A and I had an appraisal done on property B a year ago or so but I had purchased it maybe five years ago, if I gave you that appraisal, would that be valuable?

Josiah:
So if you’re talking residential, typically you’re dealing with a lot of conventional and FHA loans, that kind of stuff, right? VA, they want sales that happened in the last 12 months if not the last six months. So if you’re handing them an appraisal on another property that you own, that the sale didn’t occur in the last 12 months, you could give it to them and they could look at your data and stuff but they’re going to go try to find recent sales.

Ashley:
So it’s not going to be a comparable because it’s not a recent sale.

Josiah:
It’s not going to be a comparable but the data is valuable. So if you’re on the commercial side and you’re valuing let’s say it’s assisted living, right? And you’re looking for data on assisted living centers and there’s not a lot of data and you’ve got two other assisted living centers you recently had valued, I would be very interested in getting those reports and looking at some of the data they were able to uncover because that might be data that I hadn’t been able to find, right? And then I could go verify that data and use that data in my reports as well. So it’s really like as an appraiser, you’re playing detective on trying to uncover what the true value of a property is based on market data. So the less data you have, the more important it is to go find it in outside sources. On residential, it’s much easier because there’s tons of residential transactions and there are a lot of them on the MLS and they’re very easy to locate. So it’s harder to provide something like that on the residential side than it would be commercial.

Felipe:
Josiah, I have like a two part question, I guess, because I’m thinking about what you’re saying and this is great knowledge. I’m wondering why it took so long to do this interview. This is amazing. What if I’m doing a flip in a terrible neighborhood and I know that I’m going to have the nicest property on the neighborhood but I know that it has to get appraised for some loans out there, what’s my best course of action when doing something like that, when I’m flipping a property in a neighborhood that I know I’m going to have the best house and the comps are not going to be great. What do I do?

Josiah:
Yeah. So that’s a challenging one from an investor standpoint because it’s hard to pin down your ARV because you’re looking at comps in your neighborhood.

Felipe:
Can you explain what ARV is to some of our listeners?

Josiah:
Yeah. After repair value. So that’s just like in appraisal terms what ARV is called is the subject to completion value. So you’ll see that on an appraisal when you get a residential appraisal done. Though, if you’re doing it as is, as it’s existing, it’s going to be marked as is on the report. If you’re buying the property and the bank or lender wants you to value it as it would be completed in the future today, they’re going to do a subject to completion value. And they’re going to take into account all the repairs you’re going to do to the property that you’re planning and they’re going to appraise it as if it were already fixed up.

Ashley:
This would be for a new build too, cracked or doing a construction on?

Josiah:
That’s correct. Yeah. If you valued a new build that there was nothing on the land as is you just have land value, right? But if you give plans to the appraiser and say we’re building this $300,000 house here, we paid 30,000 for the land, 270 for the improvements, the appraiser’s going to do a subject to completion appraisal on that and take into account the planned improvements with a hypothetical condition that those exist today. And they’re going to pull comps for structures that are similar in square footage, amenities, bed bath count, all that of existing structures today. So when you’re looking at appraisal, you’ve got as is or you’ve got subject to completion. And so Felipe your original question was, what do you do when you think you’re going to be the best property in the neighborhood? Well, an appraiser worth their salt is going to try to go find comps that are similar and if there’s none similar in the neighborhood, they’re going to go outside the neighborhood.
So let’s say you’ve got a house that is 1500 square feet, three bed, two bath and you gutted it completely updated this thing and in your neighborhood you’ve only got two sales and they’re both distressed. An appraiser is going to likely throw both of those sales out, not even use them. And they’re going to expand their search parameters, they’re going to go outside the neighborhood and they’re going to start looking for updated properties similar in square footage. And if it were me, I would pull 1200 square feet to 1800 square feet for that 1500 square foot property and I would start looking for stuff in that range that’s been updated similar to the subject.
And so the appraiser is always going to be looking for the best data available. So if an appraiser, when you fix something up and they go and use those two distressed sales to value your property, that’s not market value for that property. So I would have a big problem with that if they did that on my report. So if they’re worth their salt, they’re going to try to find the most comparable thing and if it’s not comparable, they’re not going to use it.

Felipe:
I love that answer. And that’s great. And I’m probably going to go back and listen to that again. But let’s do one more hypothetical. Let’s say that the appraisal doesn’t come back at what I wanted it to, how do you feel about someone that challenges the appraisal based on maybe my own comps or what I thought it was going to be going back to, I thought right. Let’s go back to just, I have some data that proves that, hey, I think this should be a little more than that. How do you as an appraiser feel about that and what would you recommend for investors to do in that situation?

Josiah:
Yeah. So I would say that if you invest in real estate long enough, this is 100% going to happen to you at some point. It isn’t impossible, happens to me and I am an appraiser. So what I do is I go into every scenario kind of knowing a range of what this thing’s going to come in at and having a contingency plan with some money in reserves in case I’m doing a refinance and I’m thinking, okay, my loan to value is going to be at 75%, I think it’s going to appraise for 200 and it appraises for 190. So I got to come up with an extra 7,500 bucks to close, right?
So step number one is, don’t assume that the property will appraise exactly where you think it will and have no money in reserves to close your refinance because that can get you in trouble, right? Step number two is approach the appraiser with data if you feel like they’ve missed something. I would not email them and say, “Hey man, what are you doing? You screwed this up. You really left a lot out. Here’s what I found.” Approach them and say, “Hey, I was wondering if you had considered these comps. This one seems to be closer than some of the comps you pulled similar in amenities. Would you consider using this in your report?”
If they say, no, you don’t really have a lot of leverage at that point, right? You can’t make an appraiser stick a sale on their report. They’re supposed to be an independent third party. So they don’t have to do what you want them to regardless, right? So this is just kind of like part of it. It’s like you can’t control the banker making your loan. You can’t make them lower the interest rate for you. All you can do is give the banker information about your situation. They’re going to do what they’re going to do, same with the appraiser. You really can’t control them but you can give them data and when it pertains to your value, I would always err on doing a lot of work upfront.
Ashley like you were saying, give them the best data you can find upfront and don’t be lazy and not know your data. Know your data upfront and give them data upfront so they can properly value the property with every bit of data out there and give them data on all the improvements you’ve made as well. It’s much better to do that upfront than it is after they’ve valued the property you have the report, you don’t like it.

Ashley:
It’s kind of a followup to that, is if this is your first time ever getting an appraisal and you get this report and maybe you’re not happy with it but you don’t understand the report. I mean, the appraisal report is 20 pages long at least. And I mean, I’ve seen some for commercial properties that go over 100 pages. With that, who would the investor contact or who would they talk to if they needed someone to kind of walk through and explain the appraisal so that maybe they can take note as to wow, actually this is something I didn’t realize and now it makes sense or anything like that. Would they contact the appraiser, the loan officer, who would be the appropriate person to kind of walk them through the appraisal?

Josiah:
Yeah. So there’s a document that governs appraisers which is basically the appraiser rule book and it’s called USPAP. And it’s the most boring thing you’ll ever read. I would not recommend going and reading USPAP.

Ashley:
It sounds exciting to me.

Josiah:
Yeah. It’s pretty terrible but appraisers have to do their appraisals in accordance with USPAP guidelines. And so USPAP says that you can not discuss value or the results of an assignment with anyone but your client. Okay. So if the client is ordering the appraisal which let’s say you have a residential loan you’re doing through a bank, the bank is ordering the appraisal because the bank is making your loan. You are not ordering the appraisal from the appraiser. So the bank is the one that can discuss value with the appraiser and you can go to the bank and get your appraisal report. So if you start trying to talk value and all this with the appraiser, they’re not going to give you much because the bank is their client and they could actually get in trouble for that. So the best thing to understand is go to the bank and ask the bank to okay the fact that you could get your report and also communicate with the appraiser. And if the client is like, “Hey, this is fine.” Then you can start communicating with the appraiser.
And a lot of times the bank is going to look at a couple of things on the appraisal. They’re going to look at the value and like maybe some adjustments or something like that. They’re not going to read the whole 20 page report, right? So if there’s something you don’t understand, probably go to the person that ordered the appraisal which would be the bank in this situation and say, “Hey, I really don’t understand this. Can you help me understand this?” And if they say, “Well, we don’t really understand it very well either.” I would say, “Could you put me in touch with the appraiser so they could just walk me through how I can actually wrap my mind around this thing.”

Ashley:
Cool. Thank you. We have another rookie request line voicemail. And this one I like because it asks kind of some terminology to some appraiser terminology.

John:
Hi, this is John in South Dakota. My question is, with the explosion of interest in real market due to COVID, I’m wondering how appraisals are conducted in areas where there is a significant lack of comparables. Are there any other methods investors should be using to estimate their ARV as you mentioned of cap rates and gross rent multiplier thrown around a few times? Thanks.

Josiah:
Yeah. So cap rate is going to be something that’s more used in commercial, right? So a cap rate can be found by taking the net operating income and dividing that by the sales price. So cap rate is something like if you’re appraising an apartment and let’s say you’ve got a 100 door B class apartment in Nashville, Tennessee, the cap rate may be 5%. All right. So for B class properties of that size. So when you’re appraising this property, if you’ve got an NOI of a million dollars, you’re going to take that million dollars, divide it by the 0.05 and that’s going to give you your value on that property. So income producing properties that are commercial, you value those with cap rate. When you’re on residential, it’s much simpler and it’s typically valued using the sales comparison approach because I would say seven times out of 10, 70% of the time, the property is being purchased to live in, 30% of the time it maybe purchased as a rental, right?
So most of the time your sales comparables are going to have been primary residence buyers. So even with investment properties, you’re still using the sales comparison approach and on investment properties, you’ll also do the income approach. The gross rent multiplier is going to take the income from the property, have a multiple that it uses to arrive at a value which has to reconcile with the sales comparison approach. So the gross rent multiplier, I wouldn’t get too hung up on that and residential, it’s not something to get hung up on but just know that in residential, if it’s an income producing property, it’s a rental and you’re dealing with a loan on a rental property, you’re going to do the sales comparison and the income approach and then reconcile those values for a value overall.

Ashley:
Did everybody get all of that?

Felipe:
Yeah. And I think the question was like, during COVID, if there’s not a lot of comps, what should be done and they didn’t say what kind of property this is.

Ashley:
Yeah. He just said in real markets since there wasn’t a lot of sales and now that there’s an explosion of interest of people starting to buy in the real markets because of COVID, how should you find your comps here?

Josiah:
I’m guessing he’s talking of residential. So if it’s residential, it would just be like our early example. You’re just going to expand your search parameters and look for the best comparable sales you can find. So that’s always what an appraiser is going to do. If there’s no comps within the neighborhood they’re going to expand to maybe a couple blocks outside of the neighborhood. If there’s no comps there, they’re going to expand to the entire city. If there’s no comps there, they’re going to expend… They’re going to keep going out until they start finding comps and that’s what they’re going to use.
So if it’s commercial and there’s not a lot of comps, they do the same thing. They’re just using cap rates. So like when I worked at CBRE, they’ve got data tables they build out quarterly on what these different respective property types are trading at cap rate wise in these different markets. And so if you’re appraising a Walgreens, they’ve got internal data and all these appraisals they’ve done on Walgreens that they can use as data in their reports and then they’ve also got data on LoopNet, Costa, all this other stuff. And on top of that, they’ve got these reports where they’ve compiled cap rate data in these different markets to give you a cap rate range for your property in your market that will help you with this.

Felipe:
So Josiah to not cut you off there but to bring it down a level because I don’t know about you guys, I don’t know about my listeners but for me on my end, I just was like, that was a whole lot of really big words.

Ashley:
Hold on Felipe. I have one more thing I want to add because I love the analyzing and the formulas and stuff like that. So I actually got two appraisals in the mail today for a three unit and a two unit that I’m putting into a portfolio loan and I was going through the appraisal, looking at it and I’m somewhat familiar with it but I was wondering, so if someone wants to use taking an existing appraisal and kind of copy that formula and like that format because it’s almost like an Excel spreadsheet when you look at the comparables and how they have that set up, would you recommend someone kind of using that format and then using the formulas that they have listed to kind of do your own little case study before you actually get an actual appraisal on it? Or is that a waste of time?

Josiah:
Yeah, you could. I would probably say that it’s probably going to be more likely that the next appraisal you get has a completely different thing they’re using, so the software. But the principal on what you’re saying is sound which is, you need to know how to properly value the properties that you’re working with. So basically what I would probably do in that scenario is look at their tables and then look at how you did your math and see how close you were to it and figure out what they’re doing differently if anything and then tweak your formulas because there’s tons of different appraisal softwares out there.
Residential is more streamlined. Like typically, you might see the same residential software but on commercial… Like when I was at CBRE, they build their own templates, their own word doc and Excel doc Macro and a lot of these different appraisal firms will do the same thing and all their reports look different but they’re all reporting on the same type thing. So I would say it’s probably more important that you just nail your own model down and make sure that you’re somewhere around what they’re doing with your math as long as the numbers are the same. Does that makes sense?

Ashley:
That’s what I’m going to build tonight, my own appraisal spreadsheet.

Felipe:
I’m going answer Josiah’s question. Sorry, Josiah, nope. That does not make sense to me. So for all of the listeners like me who are like, what did I just hear? Okay. So this great biggerpockets.comREIglossary, you can go on there and you can hear all the terms that Josiah just threw out there as well as Ashley. I kept trying to stop you, but I was like, nope, I’m going to let him keep going. There is a great place on BiggerPockets actually where they’ve built like a definition glossary style thing for like words like ROI and net operating income and bank owned or just tons of definitions for that. So definitely go and check that out on biggerpockets.comglossary.
If you had a little trouble following some of those terms where we didn’t get to dig into all of those, that’s a great resource that BiggerPockets gives out. Again, biggerpockets.comglossary, you can go find all of those terms, rewind that, listen to it again after you’ve kind of done a little bit of education on some of those words because half of that just went right over my head. Some of us are a little simpler. We just invest in single family homes and rent by the room, right? We don’t get that deep but I’m glad that you were able to talk a little bit about that. So thanks for that. But definitely like I said, guys go on BiggerPockets website and kind of do a little bit of backend homework on that as well.

Ashley:
Felipe, did you ever hear the saying a lady in the streets, a freak in the spreadsheets?

Felipe:
Oh my God.

Ashley:
I feel like that’s relate to this so well.

Felipe:
Wow.

Josiah:
Oh, man. I think that might be a good tee shirt or coffee mug?

Ashley:
It’s a tee shirt, I’ve seen it on Instagram. Someone would wear that and like, oh my God, that is me. I love the spreadsheets.

Josiah:
That’s a real a tee shirt? Well, that’s awesome.

Felipe:
We got to get that. We got to wear that for the next show. No, the reason I say that is because for me personally… And this is going a little bit off of topic but for me personally, I hear all the terms and by now I get most of them but when I started, I was worried about one single family home and getting that first rental property. And a lot of our listeners are interested or like okay, 50,000 properties or Grant Cardone style money is great and all but I just want to know the next step on how to buy my next property. And you’re one of the Rs in the Burr, right? And I want to hear from Josiah, how do I just get the money back from my property, right? I want it appraised. I want it to hit the appraisal. I don’t quite know yet what all the terms are and it’s really important that we educate ourselves on that. So for me, I had to go onto BiggerPockets and read and figure out what each one of these meant because even through high school, this was a problem for me, right?
I had to read the same thing over and over and over again just to understand it. So to all the listeners I’m telling you, it’s very important that you understand the lingo and what it means because it’s going to either positively or negatively affect your real estate investing. If you don’t understand the net operating income, the return on investment, how an appraisal works, how an appraisal thinks, how someone like Josiah is thinking in those 15 minutes that he’s in your house appraising because those 15 minutes can be the difference between 20 grand easy. Josiah, would you agree?

Josiah:
Yeah, definitely. Yeah. I mean, there’s some high level best practices, I would say, that are going to help you in this process. One is when you’re getting your property appraised, make sure it’s clean, right? Think about selling your property, having someone that wants to buy your property, you don’t want your property to be trashed and dimly lit, no lights will turn on, stuff stuck on the floor, I mean, like smelly, you want it to be light, bright, make a good impression, right? So somebody is walking in your house, like you said. I mean, sometimes it takes a couple of hours to appraise a property. I don’t want to make it sound like it’s always 15 minutes but sometimes they’re only there 15, 20 minutes, sometimes they’re there longer but you have really one impression to make. Okay. And they’re looking at the condition of the property.
So even if you haven’t put in granite countertops and stainless steel appliances, clean the property up, have the lights on, have the window shades open where it’s light and bright and pick everything up. That’s going to make a better impression than if the appraiser literally can’t see what he’s looking at. I’ve gone in some properties, there’s magazines stacked to the ceiling and junk like quarter houses, you literally can’t see anything. You know what I mean? So it’s much more difficult to do your job and the condition of the property is likely not in very good shape if the place is just completely trashed with junk everywhere. So that’s one thing you can do. Ashley, you want me to keep going or you have any questions on that?

Ashley:
Well, I have a question. Yeah. If I could jump in real quick. So as an investor yourself, if you have a tenant that maybe is not very… Has kept the house very nice.

Josiah:
The fun part?

Ashley:
Yeah. Have you ever offered an incentive as to, “Hey, I’m having an appraiser come, do you mind picking up the house, having it cleaned and I’ll take $20 off your monthly rent.” Or paying for a cleaner to go in.

Josiah:
It’s a good idea.

Ashley:
Have you ever done anything like that? And what’s your advice on that to kind of motivate someone to…

Josiah:
It’s actually a problem in appraising, going in properties on the residential side that are leased because the tenants don’t want you there, right? Because the owner is not telling the tenants typically what’s going on with the appraisal. So the tenants, first thing they want to know, are they selling the property? Are they refinancing the property? What’s going on? Why are you in my house? And then the tenant doesn’t own the property, the tenants just rented it and you’re intruding on their life. And you’re snooping around in their stuff, taking pictures of all their rooms. And so the tenants are very resistant sometimes. So letting you in their property which creates a problem for the appraiser because they’ll tell me like… This has happened so many times I could not even count. They’ll say, “Yeah, the appraisal set up for 2:00 PM tomorrow. The tenant’s going to be there, they’ll let you in. We’ve informed them. We sent them a letter.” That’s the worst thing you can hear, we sent them a letter.
I’m like, “Okay, did you talk to them?” Because I’ll show up and there’s nobody there or the tenants are there and they won’t even open the door and there’s no property manager there or anything. And I can’t get in. So I got to go home and come back and charge them a trip fee. So getting the tenants on board is a big part. As a property owner, get your tenants on board with the appraiser being there. If you could figure out a way to incentivize them to clean it up, that would be great because the other thing to consider the condition the tenant’s leaving your property in is going to affect the value on your appraisal. So if the tenants in their trash in the place, that’s going to be considered when the appraiser goes in there and values that. So if there’s a way to incentivize them outside of just taking their deposit away to have them actually take care of their property, that would really help your appraisal value.

Ashley:
Okay, cool. I have a short little story that I can kind of add to that. My friend, we were doing a loan together for a property then he was doing a separate one and it was four all tenant occupied and he forgot to meet the appraiser at the property. And the appraiser called me and because the bank put me down as a point of contact because I was sending the information for both loans, stuff like that. And he was calling me like all mad that nobody showed up and I’m like, oh God, now this is going to affect my appraisal.

Josiah:
Yeah. It’s frustrating.

Ashley:
Yeah. And he had to come back the next day and my friend met him then but even then like having to coordinate the tenants through that, like my stuff is now property management. Well, they took care of that but for my friend’s property just trying to get all four tenants to either be home at one time or for them to allow entry. And he’s not the type of guy to just put a note on the door and say, “We’re coming in and here’s your 24 hour notice. Even if not here or I don’t hear back from you.” So any more advice you wanted to give on that as to how to coordinate with your tenants and handle that and make sure they-

Josiah:
I mean, my advice, if it were me and I were having one of my properties appraised, I would want to talk to all the tenant on the phone or literally text and receive a text back from them acknowledging that this is happening and getting there okay because the appraiser goes out and only sees three of the four units and they’re doing a full appraisal, they need to see the interior of the other unit. And you may end up with a trip fee if they have to come back and it’s also frustrating for the appraiser because some of these appraisals, they’re not getting paid very much money and they may be driving an hour both ways to your property.
So they want to make sure and get their job done and be as efficient as they can as well. So if it were me, I would talk to each one of my tenants or have text confirmation. Another tip that will really help this appraisal process go smoothly is the day of your appraisal, send them a text a couple hours before your appraisal reminding them that the appraisal is about to occur and to make sure to have someone there to let the appraiser in.

Felipe:
Yeah. That would be interesting. I remember buying a property out in Cookeville, Tennessee once and I wasn’t getting it appraised but we were getting an inspection and the tenant just wasn’t there to let the inspector in and the landlord broke through the window. I don’t know how legal any of this is but I’ll never forget that the landlord’s legs just sticking out and kicking as he’s trying to get through the window, he really wanted to sell the property. I don’t know, super crazy.

Josiah:
That’s hilarious.

Felipe:
Have you ever had to go through a window just to-

Josiah:
I’ve gone through a number of windows. Yeah.

Felipe:
Oh my God, I feel like we all have.

Josiah:
Yeah.

Felipe:
We’ve all have.

Josiah:
You do a lot of crazy stuff as a landlord, as an owner of a new distressed property. I’ve broken into a number of my own properties just trying to get the door open.

Felipe:
I have done that many a times. All right. So this isn’t part of the regular show but I’m going to be dropping another bomb like I did on the last one where I gave a super awesome tip. Here’s my Felipe tip of the day. So for all you guys out there that are doing flips or wanting to add value to your property, I’m going to save you some money real quick. Seriously, this is wild. So this blew my mind. If you go to eBay and you type in Home Depot Coupons, you can get $20 off a $200 purchase from Home Depot and it costs you $1. That coupon costs you $1 and it works. So if Josiah is coming up to your house next to check on your property, to see what kind of value you’ve done, make sure that you buy these little coupons and go to Home Depot and use them. $1 will save you $20 if you buy these off of eBay. That is my boom bomb of the day.

Ashley:
Felipe, my jaw did drop, I will admit that on last episode about your tip with Sarah but I’ve to say I’m disappointed because I knew about this one.

Felipe:
You already about this one?

Ashley:
Yeah. I buy the loads ones off eBay, they’re 10% off. I mean, I don’t think there’s a minimum on those ones, how much you have to spend. And then there’s also like $10 off 100. They’re always on Home Depot off on anything.

Felipe:
Yeah. I thought this one would tag onto the last one though because you get $20 back but you still get that price match for 90 days for it.

Josiah:
That’s awesome.

Ashley:
No, keep them coming.

Felipe:
Every week.

Josiah:
Hey, I got a tip I want to drop as well if you guys are okay with it.

Ashley:
Yeah, please

Felipe:
Do it.

Josiah:
Alright. And I said this one on my BiggerPockets episode but this one could literally make you 40 grand on your next deal.

Felipe:
Wow, here it comes.

Josiah:
The return on investment on this could be ridiculous. Okay. When you’re looking for properties… And this is something that you would only know as an appraiser probably or you might’ve figured this out, a few of you, but most of you probably not. Go to Lowe’s Home Depot buy yourself a tape measure and start measuring your properties that you’re looking at buying. Okay. You’re going to find that people are listing a property at 1400 square feet and when you finish measuring it, you’ve got a 2000 square foot property on your hands.
If you’re in a $100 square foot neighborhood, you just found $60,000 of equity by just spending maybe 10 minutes wrapping a tape measure around that. And that tape measure is going to cost you $15. Start doing this if you’re trying to build. Let’s say your first goal was getting 10 properties, just do this on the next 30 deals you look at and you’re going to find five to 10 that you found hidden value that nobody else is looking at and do that and you’re going to start finding really good deals even in a hot market.

Felipe:
So I’m going to give a hack on that because I’m probably not going to go buy a measuring tape and figure out how to do square footage on a house but I’ll tell you what I will do.

Ashley:
Be one of the wheels.

Felipe:
Yeah. Now, I have found that when looking for deals on the MLS, if I’m finding a 2000 square foot home and it’s got a two bedroom, one bath, in my mind, I’m like, okay, that’s not right, there’s a bedroom missing there or a bedroom that I can add, right? So I’m assuming Josiah that’s probably the same thing that you’re saying, right? I mean, look at this square footage because a lot of realtors that I’ve met, they’re just posting the same square footage from when it was listed last time. They’re just copying and pasting. They’re not going in there to measure the square footage of the house. So just like Josiah said, when you’re out there looking for deals, look for the mistakes also that realtors make. 2000 square foot home, two bedroom, one bath that doesn’t even sound right, there’s bedrooms or bathrooms missing in that. And there’s tons of value add. Just like you said, you do 10 of those, you’re going to find one for sure.

Josiah:
Yeah. And a good place to start kind of piggybacking on what you’re saying is if you look at something, like I talked about this as well in the other podcast but I found a duplex that looked fairly large. It was two story and it was two bed, one bath on both sides. And on the listing, it said it was 1200 square feet. I’m like, there’s no way that each one of these units is 600 square feet. That would have to be 300 square feet on the first floor and the second and the structure was large, right? So I was like, I think that’s only for half the duplex. So I went out there, took my tape measure out there, measured around the outside of that thing and the second story in like 10 minutes discovered the thing was 2,600 square feet instead of 1200 and that was one of the best deals I ever did. We walked into $150,000 of equity on that thing.

Ashley:
Wow. That’s awesome. That’s an awesome story. I think it is so work to take that time or would you say it took you 15 minutes to actually measure it out?

Josiah:
Yeah.

Ashley:
Yeah. I mean, it’s not going to hurt anything at least try that when you’re looking at properties. Around here, there’s a lot of two beds, one bath for sale around 1000 square feet where those, I think that you could probably find those deals where it’s actually more than what’s being listed or even find another bedroom in there too.

Josiah:
Yeah. Or just like Felipe is saying, literally look at the listing as kind of a first initial smell test and say, does that look bigger than they’re saying? And if it does then go out there with your tape measure, if it looks like a deal, you don’t have to go out and measure every property. But if something looks off then you could go out there and measure it real quick. And you may find that it’s like 50% more square footage there than you thought.

Ashley:
And if you have no idea what the square footage is by like looking at a house, take your tape measure and just take a spray paint and make a house in your yard and like, okay, that right there is 1200 square feet. That’s how big that is and use that as a gauge or use your own house to kind of look at that is about 1200 square feet, that’s what it looks like.

Felipe:
Ashley, we don’t all live on 1000 acres where we can do that. Some of us, we have to use our neighbor’s yard or the yard or we’d have to tap into the street.

Ashley:
Okay. So we’re going to move on to one of our segments now. We have changed it up. Well, I changed it up and Felipe just laughed at me but it’s called the MVP, but we usually do most valuable player but this time we want to do most valuable property. So what is something when you go to a property, you are just like, this property has value just by looking at it right off the bat.

Josiah:
Typically, when somebody’s taken care of the condition of the property, I’m automatically impressed, right? And like I said, the amenities don’t have to be like top end, right? If you’re buying a property in a C class area where let’s say you get it for 70,000 and rent for 900, you’d probably don’t want to put granite in there but an appraiser could walk into that property and have one of two experiences. One is everything’s clean, it smells good, everything’s put away, it’s easy to inspect. The other experience could be, it’s difficult to get into the property, it’s bug infested, can’t get the lights on, it smells terrible. You know what I mean? So I guess the first thing that automatically impresses me is like, when I walk into a place, is the condition good? You know what I mean? And that doesn’t necessarily mean amenities. It just means literally is stuff picked up and put away and it just makes a good impression on you just like it would if you were selling it, right?

Felipe:
I think that’s really important because a lot of times people are like, “Oh, my tenant messed up the refrigerator. I’m not going to fix that. They should fix it or I’m going to do this or I’m going to buy the cheapest refrigerator that I can and put it in there.” But at the end of the day, you’re hurting yourself because one, you might have to go fix it again and again and again but two, if you are going to get your property appraised or refinanced or whatever the case may be, you are walking into a property and you’re going to see that this person is not taking care of their property and that might affect what your appraisal comes in at. So I would challenge everyone to think about that when you’re investing into your property, make sure that you’re investing, I think, in the right places, right? Kitchen, bathrooms, things like that. Mulch, I don’t think is going to give you the best return on your investment if you’re getting it appraised.

Josiah:
Yeah. No, there’s definite obvious places that your money’s going to go further than other. And I’ll tell you one thing that just hurts my heart as an appraiser is I’ve been to some properties that are way over improved. And it’s really sad because the owner’s like, well, I put this into it and the sad response to that is that doesn’t really matter, what matters is what the market is valuing this property at. So having a gold-plated toilet that’s not actual gold, gold painted toilet is not really going to help your comps and over improving a property is a really great way to destroy a lot of value and lose a lot of money. So again, the way you can understand what would be over improving is look at comps and figure out what the market is demanding.
If you’re in an area where everybody’s got granite, everybody’s got hardwood floors and you’ve got old dingy vinyl and some kind of cheap countertop, it’s going to hurt your value, right? So look at comps, look at sales comparables and try to figure out and it goes the same in commercial, right? If you’ve got an apartment complex, it’s got washer and dryer hookups and everything’s updated, paint’s updated, water-saver toilets, nice countertops, stainless steel and then you’ve got another complex that hadn’t been updated before, no washer, dryer hookups, you’re going to see that in the rent that’s being charged. And that’s going to trickle down to the NOI which is going to affect your overall value. So all this stuff matters.

Ashley:
And not even just looking at the sales comparables, like looking at the recently sold but look at units that are listed right now and what those rents are. I mean, I’m constantly checking Facebook market place, Craigslist, Zillow, Trulia, to see what’s being offered for rent. And a lot of times there’s pictures included and you can see what those units are going for. And then you can almost go as far as being that freak in the spreadsheets and tracking it like, okay, that unit was kicking off, it was wasted, it’s rented, it’s gone.

Felipe:
I can’t get over that. I will never get away with that. That’s going to be her new name on my phone.

Josiah:
The freak on the spreadsheets.

Ashley:
If you keep looking at these counseling, you’ll get a better idea of what is in your market and you’ll get to the point where you know exactly when you’re looking at property to purchase, you would know exactly off the top of your head what that would rent for. And to make sure that you’re not going to put too much into the property. And I can think of two duplexes right now that have sat on the market for over a year and a half where one or both units was completely gutted, updated and I mean like spa bathtubs and granite countertops and just completely overdone where there are no rentals at all that even have granite or hardwood floors in that area at all. And they’ve just sat because of the amount of rent you would charge to get the money they’re asking for, no one would pay that for that unit in this area.

Josiah:
Exactly.

Ashley:
Yeah. But let’s move on to another segment we have. This one is random questions that Felipe and I just get to put together.

Josiah:
I love it.

Ashley:
So the first one is what is one real estate technique or strategy you learned this past year and have implemented.

Josiah:
That I learned this past year?

Ashley:
Yeah. Not even like how to find deals or something you’ve done different in your business.

Josiah:
Yeah. Since I’m now working on buying apartments, I’ve been going directly off market to off-market owners. And I built a team that we’re contacting up to 200 off-market owners a day and I’m getting leads that way. So that’s something that I’ve done within this last year that I was not doing previously because I was working on one to four family. I know you can do the same thing on one to four family. I just had really good relationships with wholesalers. And I was getting a lot of good deals through wholesalers and my one to four family investing. And it saved me the time of having to do this, going to off-market owners on the multifamily side. So I would say that probably my answer is building a little team and going directly to owners off-market.

Ashley:
That’s awesome.

Felipe:
I really liked the question and it’s typically Ashley that asked this and I’m starting to like it more because I’m researching the piece of technology. Well, what is that one piece of technology that you love to use and that you would recommend to other investors?

Ashley:
This could be an app software not specifically an electronic device.

Felipe:
Anything.

Josiah:
My answer is probably not going to be what you’re expecting but my one piece of technology that I would highly recommend is Instagram.

Ashley:
Yeah.

Felipe:
Really why? Well, Ashley is really excited, look at her.

Josiah:
Instagram and podcasting are my two. Maybe everybody’s going to start a podcast after this but you have the option to network with people with limited time, right? And you can either go to local meetups and meet 10 people, every meetup and cap out with the 50 people that go to that and you could be friends with all those people and that’s great or you can start a podcast or get on Instagram and connect with people all over the world. And I’ve been doing my podcast, I started doing my Instagram which I’ve been doing that for about the past couple of years.
And I’ve connected with so many people doing investment deals, including the two of you through my podcasts and my social media accounts. So I would say if you’re listening to this, even if you’re like 70 and you think social media is not for me, you can connect with a lot of really awesome people who are doing a lot of really great things through social media and it allows you to network and just cover places you would never be able to network in person. A few were using the old school technique. So that’s really mine. It’s been a game changer for me, just investing time in social media which is Instagram for me and investing time on my podcast.

Felipe:
I would agree. I think IG has helped me out a lot by seeing what other people are doing in other markets and how that’s trickling down to myself. I’ve gotten many ideas for my build-outs based on other people that are doing and then seeing how other people are making money in real estate. So I would agree IG has been pretty good.

Ashley:
Yeah. We haven’t had anyone say that podcasts or Instagram? So that’s great.

Josiah:
I mean to me, if you get those things right, you can figure the other stuff out.

Ashley:
For the last question we have, do you have a crazy appraiser story that you could share with us? Just something you think we wouldn’t believe.

Felipe:
Yeah.

Josiah:
Oh man, I’ve got so many. I mean, one time I was sent over to appraise a vacant property and when I opened the door, the grass was grown up and I was like, okay, this looks dangerous. It was not in a great area. I go in there and start doing the appraisal and this guy walks in with his hand behind his back. And the guy had a gun and was like, “Hey, who are you?” And I’m like, “I’m the appraiser, don’t shoot me.” And this guy’s like, “Okay, I’m the next door neighbor. I’m friends with the owner. Just want to make sure no vagrants were in here.” That was just like a simple story. I had another one where this was… It’s always the investment property appraisals. Those are always the crazy ones.
So I had another one where the owner scheduled the appraisal said the tenant was going to be ready for me. I go out to the property at the scheduled time, as I’m walking up, there’s a bunch of junk cars sitting in the front lawn, there’s a sign that’s kind of fallen over that says, “Guns don’t kill people, I do.”

Felipe:
Oh my God.

Josiah:
And then I noticed when I walked up to the front door, there is a surveillance camera filming live feed of the front yard kind of thing. And so I knock on the door and the guy doesn’t answer the door. He’s like from behind the door, “Who is it?” And I said, “Hey, it’s the appraiser. We have a scheduled appraisal right now.” He’s like, “I’m not ready. You got to come back in an hour.” I was like, “Here we go.” “So, okay. I’ll be back in an hour.” So I left, went, did some other work, came back in an hour, the dude answers the door and he’s got his shirt off, he’s wearing shorts. He’s got dyed, bright red hair, not the normal red we’re talking about bright.

Ashley:
A clown red?

Josiah:
A clown red, this guy might’ve been a clown. Maybe I was dealing with it, I don’t know. But he’s got bright red hair and I walk in and there is a projector screen projecting a live feed of the front yard on the living room wall. And it’s a hoarder house as well and he’s got like magazines and stuff to the ceiling. And the dude followed me around like half of six inches behind me the whole time while I did the appraisal. And I was like, this guy might kill me. It was terrifying. And I finally left and when I left… And there was a dead fish stuck to the window sill. There was a giant rat dead in a rat trap inside the house that was just decaying. And half the lights wouldn’t work. I’m pretty sure the guy was like cooking meth in there or something. And it was just terrifying. I think he was following me around to see if I was going to find his drugs and stuff. And I was just trying to get out of there.

Felipe:
Hey man, don’t look in that cabinet right there.

Josiah:
Yeah, exactly. I was like, “I’m just going to be out of here real quick.” So anyway, I left and I told the landlord, I said, “When was the last time you went in that property?” And they were like, “It’s been a few years.” I was like, “You need to go check it out.”

Ashley:
Did you offer to buy it since exactly has some value?

Felipe:
Yeah.

Josiah:
Yeah. Tip to all the investors out there, do some kind of tour of your property every now and then so you don’t get somebody like that in there.

Felipe:
That’s crazy. Josiah, those are some crazy stories, some great tips, definitely some great knowledge, some great bombs that you’ve dropped for appraising and what really adds value to properties. So as always, man, seriously, thank you for your time. Thank you for coming on. But before we get out of here and close it up, Josiah, where can people find out more about you?

Josiah:
Yeah. So I’m active on Instagram. That’s @dailyrealestateinvestor, all spelled out. Feel free to shoot me a direct message or whatever. I’ve got contact info on there and I’ve got links in my bio there to my podcast which is The Daily Real Estate Investor Podcast. And I’m also launching a new podcast on multifamily. We’re going to document our process of going from one to four family investing into multifamily investing and got Brandon and Turner coming on that show to talk about his mobile home park investing and I’ve got Brian Murray lined up and a lot of other great investors. So I’m excited about that. You can find a link to that also in my bio on Instagram. So that podcast is going to be Multifamily Investor or Multifamily Mavericks. And I’ve also got a book I would love for everybody to check out it’s titled Dream It and Build It-How to Crush Your Real Estate Investing Goals and that’s on Amazon Kindle or physical format. So it’s been awesome. I really appreciate you guys having me on, love and tracking with your podcast and stuff and love what you guys are doing.

Ashley:
Yeah. Thank you. I mean, you are doing so many great things as writing a book that is awesome. And if you guys want to go back and listen to… Josiah had mentioned it in the beginning but he was on the BiggerPockets Real Estate Podcasts. It was show number 382. And it was actually two parts because it was just filled with so much great information it didn’t fit into one episode. So it makes you guys go and take a listen to that but thank you so much for coming on the show today. We really appreciate it. I’m Ashley Kehr @wealthfromrentals and he’s Felipe Mejia @felipemejiarei.

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In This Episode We Cover:

  • Getting inside the mind of an appraiser
  • What information you can and should provide an appraiser
  • The top 3 variables that determine value
  • Approaching the appraisal process with “data and humility”
  • How appraisals vary by market
  • The Sales Comparison Approach vs. the Income Approach
  • Kitchens, bathrooms, and added square footage
  • How doing unpermitted work can come back to bite you
  • Why you should never outright ask an appraiser to come back with a specific number
  • The right way to challenge a low appraisal
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Connect with Josiah: