All Forum Posts by: Chris Mason

 You are right, realtor is wrong. Tell them to check with either their broker (if they do commercial) or whomever is serving as their commercial real estate mentor. Letter of intent and/or proof of funds is more the norm. 

2-4 unit real estate appreciates slower than SFR.

Emotions are a component that can drive sales prices up. The emotional buyers do not want to share walls or deal with tenants, they want a big single family home to nest and make babies in. 

The dial between cashflow and appreciation is always there, it never goes away, and it has no exceptions. 2-4 unit means the dial is turned a tad more towards cashflow, a tad away from appreciation. 

It's state specific b/c of property taxes.

If you want a super rough ballpark, each $100k = $500/mo.

That ballpark works for both 5% down owner occ SFR, and 25% down rentals. The higher loan amount of the owner occupant is ballpark a wash with the higher rate of the investor, who is borrowing less due to the larger down payment.

You can scale it up and down easily. If $100k -> $500/mo, then obviously $25k -> $125/mo.

You will note that I said "ballpark" like 5 times just now -- for a reason. 

Anything more detailed, it's spreadsheet time.

No one serious thinks that Philadelphia or Oakland are going to be depopulated ghost towns within 10 years.

Via the mechanism of people voting with their wallets, incomes are ultimately what drives both home values and rents. And the voting may occur differently, depending on life-stages, or demographics.

For example ("life-stage theory") one totally plausible scenario is that for higher income earners renting, they vote in the city to a greater degree. And, moving forward, those same higher income earners +5 years down the road, are voting in the burbs. Perhaps moving forward renting in the city is more enshrined as a 20something thing, then when it's time to buy (current median is ~32.5 years old) you move to the 'burbs. If that pans out, it would mean greater rent appreciation in the urban cores, and greater SFR appreciation farther out.

A more "demographic" theory, and we've seen this in history before, is that the preferences of higher income earners have switched (perhaps COVID accelerated it). As mentioned in OP, back in the 1950s it was the suburbs that were hot. That meant lower income earners were "bid" (gentrified) out of the suburbs, forced into the urban cores. The urban cores, in turn, saw disinvestment, blight, bad stuff. Roughly the opposite has happened since the 1980s -- the urban cores are what the high income earners want, so the folks already there (who had been gentrified out of the suburbs just a generation before) have been getting gentrified out of the urban core, into the suburbs. And on, and on, and on, back and forth.... I have no idea what "cool" will be for my kids, but it's not going to be what's "cool" for my generation. Has anyone else noticed a return to young person fashion trends borrowed directly from the 1970s and 1980s? Things that "our" generation think of as old, tired, boring, etc? To the kids, it's back in fashion. Next time you see a group of teenage girls, look out for pants that stop at the calf, and a waste that's so high it covers their belly button -- oh, look, it's 1982 again. I'm assuming "big fizzy hair with LOTS of hair spray" is coming down the pipeline, within 5 years or so. Maybe the suburbs being 'hot' again is just the latest iteration of ridiculous looking (to my "elderly" eyes) jeans. Here today, gone tomorrow. But how long will "today" last? I guess that's the big question. 

https://www.appraisalinstitute... and click "find an appraiser." 

Though if you're willing to pay "$200 to $500," you may as well get a full appraisal. If you're contacting the appraiser directly from that website above, that means no appraisal management company taking a cut, so the net proceeds to the appraiser of, say, $450, isn't actually off what the net proceeds would be if you ordered an appraisal through a lender and paid $600.

 Assuming it's cashflow positive, it wouldn't automatically hurt anything. 

If the magic FTHB down payment assistance Biden has been talking about went through, and was hypothetically only for first time buyers, and you otherwise qualified, you now wouldn't, as you are no longer a FTHB, in that scenario.

• "- Is there something buried deep down in the fixed loan terms that would allow the bank to change either the principal or interest payments of a fixed rate mortgage under certain circumstances, even if you pay it on time and never violate the terms on your end?"

I wouldn't be surprised if lenders started enforcing some of the provisions not commonly enforced now, especially if there's inflation, higher rates, and real estate values stop soaring. For example it's pretty well known that reverse mortgage lenders, once the home approaches being underwater, are very quick to enforce the provisions saying that property taxes must be kept current, and adequate homeowner's insurance must be maintained. You don't hear a lot about enforcement of that stuff on "forward" mortgages... but if rates jump, there's more inflation, AND if home values stop soaring, that might change. 

• - Are there any “tricks” they can play to raise payments indirectly, for example: Is the escrow mandatory for the life of the loan, and if yes, can they somehow manipulate that to increase the payments they can benefit from?

Escrow accounts are zero profit. They aren't allowed to profit from interest on the balance, for example, and they have to periodically audit the account, and refund you any surplus. These are watched pretty closely. I wouldn't worry about this. And, if you are worried, just waive impounds.

• - If all fails, what are the chances that the entire banking industry lobbies the government to enact laws that would allow them to change fixed rate contracts in response to high inflation? Or, have the government disproportionally raise property taxes specifically for houses that are mortgaged at low rates, and use the revenue to bail or compensate those banks that are failing due to their debt hyperinflation?

California always has the specter of Prop 13 modifications, but those are populist rather than corporatist, and the revenue would sooner go to schools (etc) than banks. Modify that for whatever state you are in.

But, yes, fixed rate mortgages are an excellent inflation hedge. That's why we're seeing a massive uptick in cash out refinances, even as rates tick up. People with free and clear multi million dollar homes, who have never had a mortgage before, are blowing up my phone. Hard to imagine legislation coming out that would harm these folks, especially since these are the very folks with (thanks in part to me and my ilk :P ) lots of money to donate to political campaigns. In general, MOST of the time, legislation tends to be biased towards people paying mortgages, rather than those on the collecting end. Even if you assume nothing is done and no laws change, inflation is great for the borrower, not so great for the lender.

 Wait until the vacant unit doesn't have any ongoing work. For appraisal purposes, an old dish washer is a lot better than an empty hole with wires sticking out. And a new dish washer isn't going to move the needle, so no reason to wait for a new dish washer. Within reason, extend that across all appliances... an old and loud energy inefficient air conditioner isn't really going to hurt you (beyond statistical noise), and a new energy efficient one that's quiet isn't really going to help you (beyond statistical noise). Most of the time, when you hear about "I upgraded the air conditioner, and the appraisal came in $20k higher!" what's really going on, for at least 90% of that $20k delta, is just overall market movement. The broad 'voting with dollars' of dozens/hundreds of buyers/sellers, acting in aggregate, moves the needle a LOT more than one little air conditioner or fridge could ever hope to move it, provided the appliance in question is present and working.

 FYI, all appraisal management companies that work with lenders have horrible reviews. 

Joe owns a $425k house that appraises for $425k, Joe is going to leave a nasty review b/c he thinks it's worth $500k. Joe probably did something ridiculous, like compute price per square foot, b/c HGTV or a noob Realtor told him that price per square foot is an important part of appraising residential real estate.

Sally owns a $425k house that appraises for $425k. She thought it was worth $415k. She takes that as a compliment, maybe even something she's entitled to because she takes good care of the home, but she's not going to leave a positive review (she probably also did price per square foot, forgetting that she has the nicest kitchen on the block, which counts for a LOT more than PPSF, that $425k number could potentially even be lowball!).

Show me an AMC with 4.5 out of 5 stars online, and I'll show you an AMC that primarily works with divorcing couples. Without any Fannie Mae underwriting or accountability, what happens there is that Joe wants a low appraisal, and Sally wants a high appraisal. They both make their needs known to the AMC, and both get what they want, even if they order the appraisal on the same day, from the same AMC, for the exact same house. They both leave a 5 star review, because as "customers" they placed an order and got exactly what they wanted. The divorce court doesn't have a mortgage underwriter vetting the credibility of the appraisals, but it has a judge. The judge is clueless, so he doesn't realize what trash these appraisal reports are, think of Mr. "the internet is a series of tubes" trying to understand the differences between Tik Tok and Instagram.

Here's my 5 star review of the AMC I use, for further context.

Delayed financing is a cash out refinance. No difference in closing costs.