All Forum Posts by: Chris Mason

 Yup - also check with folks doing RVs and boats. Things sell for top dollar when they can be financed, so anyone selling any of these things, assuming they want top dollar, knows someone financing said things.

@Andrew Garcia mentioned most of them.

2/1 buydown is another option. 

Suppose the current rate you qualify for is 5% on the button.

Pay as if it were 3% year 1, and 4% year 2. Years 3-30 are back to 5%. 

Suppose that's a total $12,345 in savings. The seller could credit $12,345 to you at closing, instead of, say, a similar price reduction. Or in conjunction with.

Most folks think inflation will be back under control in a year or two, and as we all know rates tend to follow inflation. So you'd look to refinance concurrent to the effective interest rate ticking up to 5%. In the event that the projections are all off an you can't refi, you would be stuck with the 5%, but that's no worse off than you'd otherwise be anyways.

Lenders offering that aren't charging any extra fees or a rate bump. It's just moving money around, sure, but it's no coincidence it's being offered now, it's being offered specifically in response to current economic conditions. 

FHA 203k or Fannie HomeStyle in theory, but in practice your current approach is probably your best bet. A lot of folks that want to use FHA/Fannie renovation loans are overly optimistic unicorn hunters. Then an actual GC goes out to bid it, one that's willing to work with the renovation loan process (which they generally dislike), and suddenly the package deal is very much underwater, and the loan application is denied.

 Different lenders actually look at this differently. The most liberal will use the $0 payment at $0. The most conservative will count the fully maxed out "hypothetical" payment against you (less common these days). 

 I'm going to "pick on" Andrew here b/c he's a loan officer at a company listed there.

Andrew here, who knows his way around mortgages, specifically for real estate investors, (correct me if I'm wrong) probably isn't who is going to be picking up the phone if you click through the advertisement and call the 1-800 number for the company he works at.

Rather, it'll be someone in a call center, in who knows what state, maybe who knows their business, maybe not, maybe someone who was a barista in Feb 2020 who got hired into the mortgage industry in April 2020 to service the refi demand, who is just now learning how purchase transactions work, or maybe not, who knows.

But I know for a fact that I can see Andrew's phone number directly, and if I call Andrew, Andrew will pick up, and Andrew specifically knows his business (I have actually spoken with him :P ). 

There's a pie that is baked whenever a mortgage is done. It doesn't really get any bigger or smaller, but it's sliced up differently. The largest slice of that pie generally goes to who brought the business in the door. So if paid marketing brought the biz in the door, then the marketing department where the biggest slice goes, and that means what is left by necessity must go to someone who has no choice but to take those smaller table scrap sized pie slices. If it's a dime-a-dozen rate/term COVID refi for a w2 employee who owns a single house, has great credit, and has been on the job 2+ years, it probably makes zero difference (will neither help, nor harm, the borrower). The more complex things get compared to that "baseline," the more appealing it likely is (this is probabilities game) to work with someone that isn't forced to take the table scraps from a marketing department, because they're able to bring it in the door with things such as their competence, or other attributes/deliverables.

A company I once worked for was recently purchased by a big discount real estate brokerage, I stay in touch with my old colleagues (there's no bad blood or anything). We'll call them "ABC Realty," and "XYZ Home Loans"  as the company purchased. The folks that are that are the best at their jobs, are refusing entirely the massive influx of "ABC Realty" leads, those folks simply aren't interested in working for table scraps, they don't need to. Many of the "ABC Realty" realtors are attempting to bypass their self-sourced "ABC Realty" leads from being categorized as corporate leads, just so those particular loan officers at "XYZ Home Loans," whom they liked working with before the acquisition, are willing to work with those clients. We'll see how it all shakes out. :)

Good luck. :)

 I'll just go ahead and regurgitate more "old stuff" that we used to see all the time on bigger pockets years ago.

- You mentioned finding the noob realtor who doesn't know what they are doing. Yes, find that noob listing agent. Your state has a space where you can look up someone's license. Here's California's so everyone has an idea of what to look for. The "COVID vintage" realtors (loan officers too, for that matter) are going to have very little relevant experience for the market we are in, "everyone is a genius in a bull market," but we are no longer in a bull market. 

- Poor marketing. Bad pictures, someone acting like it's 2021 and quick cell phone pictures with wide angles and cheesy filters is all it takes? Awesome, great news for a buyer. 

- Ugly house, lack of "curb appeal." Great, less of your competing buyers will be emotionally motivated, awesome. Things that "look" bad but don't actually have anything to do with the "bones" of the house are also great.

- (The Redfins and Zillows don't always make this easy) Have your realtor send you listings for vacant and/or staged real estate, with high days on market. Pick a number like 90 or 120 DOM, looking for price drops is great too (was literally just on the phone with a dude who is buying a home listed for $1.8m for $1.6m, this isn't fiction, this isn't made up, it's what's happening now, before the CNNs and FOXs of the world have picked up on it, my person that closed earlier this week [can disclose numbers now that it's closed, too late for a seller "google searching the loan officer's name on the preapproval letter that came with the offer" to find/read this thread and have second thoughts] paid $1.15m for the SF Bay Area fourplex, the independent appraisal came in at $1.5m!). Vacant/staged means it's unused, and the 3 or 4 months on the market means they've "wasted" 3 or 4 mortgage payments on a "house I'm not even living in any more!" - note that some of these sellers will be "motivated" by this point, others will simply dig their heels in and refuse to see reason. That's fine, your fishing line can only hold one fish at a time anyways, if someone has their heels dug in, simply don't buy that house. In nearly all cases, >90 DOM means someone is pissed off at their realtor, and trusting them less, but stuck in a 6+ month contract, a lot of them will be "sick of it" and "just ready to be done with this house," and that's where you come in. If the zillows and redfins do start to make it easy to get DOM notifications (someone may be reading this thread months in the future), say they have or introduce a dropdown for 90 and 120 days exactly, cool, then have your realtor send you them at the 80 and 110 day mark to edge those folks out a little, and put a deadline on your offer so that the seller has to make a yes/no decision before your competing buyers get those 90 or 120 day notifications. 

"-30% of real estate agents are going to quit" - lots of huge mortgage companies have already laid off >20% of their staff. Woot woot, the great culling is well underway, should be good news for those of us left on the other side. 

 It's the same house, so a reasonable normative argument about what "should" happen could be made.

But the thing will be being evaluated using a different rubric, a different methodological approach, different "grading criteria," so it's likely going to get a different "grade" one way or another. 

A successful comedian, and a professional critic trained in the classical arts, both go to rate a painting. It's possible both give it 8/10, but unlikely. The people painting Mona Lisas generally aren't putting fart jokes in the paintings. And the people putting fart jokes in, generally aren't painting Mona Lisas (sorry guys, nothing personal). Neither one of these two successful people (the comedian and the critic) are "wrong," they're just judging the same thing by different criteria. 

 I think an appraisal will, very likely, come back differently. 

Let's assume both are refinance appraisals, rather than purchase appraisals. So no purchase contract price for the appraiser to "gravitate" to.

The appraisal of an SFR will generally be a residential appraiser, appraising to residential standards, for a residential loan. These appraisals give a lot of weight to comparable sales. If that 3/2 (nicer than subject), and that 3/2 (not as nice as subject), and that 3/2 (about as nice as subject), all sold for this price range, then that's what this one would likely sell for, so here's my appraisal report (likely +/- a few % from that most similar comp).

Once you get those permits and turn it into a storefront, you're likely applying for a commercial loan (why else would you be having it appraised? Let's assume you're not dead or divorcing, so it's a mortgage you're after), either private sector commercial, or SBA, or something like that. So that'll be a commercial appraiser, appraising to commercial standards, for a commercial mortgage. These appraisals give a lot of weight to the very metrics OP mentioned - cap rate, cashflow, GRM, and so on. And comparable sales aren't really as important here.

There's no theoretical reason both approaches couldn't arrive at a substantively similar dollar amount, but it's incredibly unlikely. Expressed differently, OP's motivation to do this conversation, assuming they aren't being foolish, SHOULD lead to increased cashflow, which SHOULD translate into a value that's far higher than what Jane and John the first time buyers would have paid for the home, pre-conversion (which, due to the principle of substitution [if Jane and John could get this other similar home for $500k, why would they buy yours for $650k? And if you could sell for $500k, why would you sell for $400k?], is ballpark what a residential appraiser would and "should" have appraised the home for, pre-conversion).

 There are 2 issues at play. 1) The buyer and 2) the appraiser.

I'll focus mostly on number 2.

If it's below grade, an appraiser is not going to include it in gross living area, and they aren't going to call it a bedroom, an ADU, or any of that (in the unlikely event that they do, you got lucky with a very liberal appraiser who gave you a gift, I'd suggest shutting up and not questioning it, hopefully the mortgage underwriter is having an "off" day and doesn't notice, but you certainly don't want to bring attention to it!).

The best you can hope for is that they call it "finished basement space." And they will treat it like a feature. A swimming pool or solar panels is another example of a feature.

For these features, they're going to look for other homes that do and don't have this feature, and calculate if they do or do not actually sell for more, or less. 

For the most part, they aren't going to get in the weeds on the feature's features. It's a hot tub or it's not, it's a swimming pool or it's not, it's got solar or it doesn't, it's finished basement space or it's not. "My hot tub has auto-jets on a timer!" and "my solar panels were made by Tesla!" isn't going to move the needle a single dollar on the appraisal, and the kitchenette in your finished basement will likely be the same.

Tough pill to swallow, but for appraisal purposes (I'm not commenting either way on "true" market value, nor am I commenting on cashflow or anything else, this commentary is strictly limited to "for appraisal purposes"), if this indeed the nicest finished basement in the area, you may have over-improved the property. 

There's nothing for the county auditor to correct, FYI. Because what they currently have, not counting the below grade finished space as living area, is likely correct, unless your particular county has some extremely unusual building codes and word definitions at play.

 There's always lots of people moving to and from California, March 2020 seems to have accelerated those trends. Within California, there's also been an exodus underway from urban cores to suburbs. We've seen this broad pattern before, nationwide, it takes a decade or more to pan out, and each time everyone scratches their heads and accts like we've never seen anything like this before (often times there is some unique, event or cultural shift, that comes along and "tips the scale" this way or that, which I think is about the only thing unique to each one):

- urban core deemed more desirable (1920s, 1940s, 1960s, 1990s-2020[?])

- higher income people move to urban core

- people previously in urban core displaced, move to suburbs

- suburbs see dis-investment, decline

- urban cores see investment, improvements, gentrification, all that

And then sometimes it goes the other direction, which is what it looks like we may be a couple years into right now:

- suburbs deemed more desirable (1950s, 1980s, 2020[?]-[?])

- higher income people move to suburbs

- people previously in suburbs displaced (perhaps the very same people that were just displaced last cycle), forced to move to urban core

- urban core sees dis-investment, decline

- suburbs see investment, improvements, gentrification, all that

If I were a sociologist, developing a "general theory" of these cycles might be something on the to-do list. Maybe it's as simple as kids having an innate desire to rebel against their parents, and whatever "event" or "cultural shift" comes a long when they are late 20somethings or 30somethings, they just latch onto that event/shift as the "why," and use it to go find some scenery to live in that's opposite whatever they grew up in.