Appraisal Values

12 Replies

In Houston, Texas sale price for every house in market is about 30% over the appraisal value. Is it still good idea to buy rental property? and If it is should you estimate that the house future value will be raised based on what you paid, or appraised value which is 30% less than purchase value?

I recommend that when you buy and hold, don't bet on or include appreciation in your analysis.  I have a deal sheet where I take into consideration purchase price, rehab costs, leverage and rental value to determine required cash investment and annual cash-on-cash return on investment.  I only take appreciation into account if that's an exit strategy.

God Bless You!

I agree with Michael, My golden rule is never pay too much for the property. There must be equity in the deal when you buy. Never assume that the value is going to rise because you cannot trust in that way of thinking. Find the deals that already have equity in them, how much equity is up to you. All my properties have had 30% equity or more when I purchased them.

Originally posted by @Mike Saidi:

In Houston, Texas sale price for every house in market is about 30% over the appraisal value. Is it still good idea to buy rental property? and If it is should you estimate that the house future value will be raised based on what you paid, or appraised value which is 30% less than purchase value?

Appraisals are based on closed sales.  Are you confusing "assessed" values?  Generally there is a lag from purchase to reported sale so if properties are actually selling for 30% more than appraised value (based on sales 30-60-90days ago) then your market is HOT!.   Even then an appraisal should comment on new not yet closed sales and can even make a time adjustment on older closed sales to come close to actual market value in their appraisal.

Thanks Guys, but I am not clear when you say to have about 30% equity in them. I am looking at the houses that are listed for $350,000, but their recent appraised value by the city is $260,000. The market is hot here in Houston. The estimated rent would be around $2,800. The reason I had future value in mind was to see after how long I break even if I had to sell the propert. Considering that I have to pay for the sale commission at that time.

City/county appraised value will be assessed value for taxation purposes.  They generally are not market values.

People that say they buy equity are generally saying they are buying a property that would sell for more IF the seller had more time to market or would spend mo ry to bring up to marketable standards.  There will be some costs to achieve the higher value so the possibility of spending more is possible.

since I've been paying property taxes in Harris and Montgomery county ( 2005 ish), the appraised value has always been less than market value.  Anywhere from 10 to 30%.  I think the tax appraisers are hesitant to raise value as fast as the market because there would be some serious protesting and riots.   Our current county appraisal is about 100k less than market.  360 vs 260k. Pretty normal as far as I'm concerned. What would the different taxing units do with a 25% increase in revenue? I doubt anyone would decrease their tax % to keep the revenue the same. 

@Mike Saidi  

Mike-

The value you are referring to is the assessment from the Appraisal District and has nothing to do with the appraised value which would be done by an Appraiser. I see that others have commented from various states however Texas is a non-disclosure sate and sales prices are not reported. They can obviously be found in the local MLS if it was a transaction that received MLS exposure

I have bought properties for $20k that the Appraisal District had for 100k and vice versa.  It is  NO indication of value and should not be relied on.  This is also why sites such as Trulia, Zillow and such have vastly inaccurate info in Texas

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Originally posted by @Greg Hall:

@Mike Saidi  

Mike-

The value you are referring to is the assessment from the Appraisal District and has nothing to do with the appraised value which would be done by an Appraiser. I see that others have commented from various states however Texas is a non-disclosure sate and sales prices are not reported. They can obviously be found in the local MLS if it was a transaction that received MLS exposure

I have bought properties for $20k that the Appraisal District had for 100k and vice versa.  It is  NO indication of value and should not be relied on.  This is also why sites such as Trulia, Zillow and such have vastly inaccurate info in Texas

 Correct. I agree. Basically don't rely on county tax appraisal for any determination of market value.  But you can look at them for trends and county opinions of what areas are better. 

Also if it is your homestead they are limited to a maximum increase of 10% a year.  

Thanks again. That makes me feel better to invest now. I wish I could find some rental property which with equity, but houses normally sell in couple of weeks in Houston. I appreciate everyone's input.

Hey Mike,

Is there a reason why you are looking at such an expensive home for a buy and hold rental?

At that rental rate, many people can afford a mortgage, is your strategy relocation or corporate housing?

1-877-668-3311
Originally posted by @Mike Saidi:

Thanks Guys, but I am not clear when you say to have about 30% equity in them. I am looking at the houses that are listed for $350,000, but their recent appraised value by the city is $260,000. The market is hot here in Houston. The estimated rent would be around $2,800. The reason I had future value in mind was to see after how long I break even if I had to sell the propert. Considering that I have to pay for the sale commission at that time.

Sounds like you are buying retail.  You could buy 3 or 4 smaller rentals and build equity into them.  Seems much easier but every has their thing.

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