I just got off the phone with a potential investor.  He is a tile guy who does high end kitchen and bath remodels and knows without a doubt that he will be a great real estate investor and that he is going to kill it.  He called to find out how much money my company would loan him on potential deals. I told him if he had some properties that he was looking at I would analyze the deal and give him feedback.

So he sends over two properties - the first he said was $195k with a rehab budget of $100k and ARV of $425,000 or maybe more, the second: Asking price $70,000, $45 - $60,000K of rehab his ARV $250,000 to $275,000.

My numbers on the first property: ARV $280,000 second property: ARV $194,000. After I sent over the numbers he called me back and argued with my numbers. I knew he would, new investors almost always do. I get it, you know that you are going to do a great rehab, you'll be able to crush the competition and it will sell as soon as it hits the market for way more than the competition. But I'd like to tell you why it's not a great idea to argue about value with a lender and Realtor, especially one who is an investor.

1. I have access to information you probably don't have. Texas is a non-disclosure state, only licensed Realtors and other subscribers to the MLS have access to sold data. The sold comps are really the only comps that matter, and the properties that have sold in less than 30 days matter more.

2.  I care a lot about location, I want to be within 1/2 mile preferably 1/4 mile and I'm going to throw out or adjust value on any comps that are in a different subdivision, school district or across a major arterial or railroad track from the house you are interested in.

3.  I only make money when a house sells or a loan closes.  If I am telling you that I am concerned about your numbers I am putting your well being ahead of my own.  I do this because it is the right thing to do and as a professional I am bound by a code of ethics to represent you and your interests and put those interests above my own.  But realize there is absolutely nothing in it for me when I tell you what my numbers are, especially if they are lower than yours.

4.  Finally, analyzing deals is how I make my living.  My employers make their living off of my ability to analyze deals and produce high quality performing loans.  We are not speculators, we lend money based on a proven equation and if we are going to take a gamble on a property it will be one we buy with our own money in our own portfolio. We do not risk money on someone else's project, we don't believe in trust but verify.  We verify period. If the deal is good we will fund it, if not we won't, it is as simple as that. 

5.  Appraisers have access to the same data I have, use almost exactly the same formula that I use and work for conventional lenders whose guidelines are just as stringent as those of my boss.  If the appraiser comes up with a number that is lower than your asking price the lender for your buyer will not loan the full asking amount.  Your buyer will have to either a. come up with the difference, (paying more than a licensed professional says the property is worth), b. refuse to pay more than the appraised price or c. walk away.

As I said earlier, I only make money when I close a loan or a sale - I have no vested interest in telling you that a property is worth less than it actually is. If my numbers are actually lower than the end result you make more money - a win for you. But if my numbers are accurate and you overpay for a property you crash and burn. If you truly disagree with my numbers get another Realtor to run a CMA for you. Make sure you tell them you want sold comps in the last 6 months within .25 miles of the property you are interested in.

PS - My number is not usually the final say, if you want to apply for a loan anyway you can.  We will not charge you anything until you close the loan, however, we will require you to pay for an appraisal which can run between $300 and $1,000 depending on the property and the location.  You will have to pay for that before we loan you the money.