All Forum Posts by: Don Petrasek

@Kevin Miller appraisal methods are consistent and there's really not much for the average investor to keep up to date with. For a two family, the appraiser is likely going to rely on a combination of the income method and comparable sales method to determine the ARV. For the income method, the appraiser will look for units comparable to yours that have recently been rented and then use those to determine net operating income (what's left after paying all expenses). Then the appraiser will then determine what rate of return an investor expects and backs into the value. For the comparable sales approach, the appraiser will choose properties like yours and make adjustments for features to determine value. Lean towards using the income approach, it will be more conservative especially in higher grade neighborhoods.

I’ve had one situation lately where an appraiser was being overly conservative (used a bank repo as a comparable sale for a property that was updated and occupied) but other than that have had no problem with getting the value that buyer and seller agreed to. 

@Colin M.. Assuming you’ve done your research and have a basic understanding of how investing in real estate works, the first step is visiting the market you plan to invest in.  Out of state investing is passive by default, but its not hands off.  More often than not when I take an out of state buyer around the west side of Cleveland, their Realtor.com perspective on which properties are good investments vs which ones aren’t changes dramatically.  You have to have first hand experience in your market and be willing to periodically come back and visit your properties to be successful.  

@Domininc R Liva, @Michael Norris is right.  Lakewood and the Edgewater area in general don’t make sense for straight investment at the current price levels, unless someone is looking for a low risk place to park cash in real estate...but house hacking still works.  I’d recommend staying in those areas for your first property and learning landlording there.  There’s a huge demand and a strong tenant base.  Starting in an area that’s going to be a bigger property management challenge and only gets you a couple of % better return per year usually is not the best choice.  One or two mistakes and you’ve given that extra return back.....and then some.  

Victor, understand the idea of selling your properties as a package with owner financing. Makes for a unique offering for a buyer. In this market though I don’t think you need to offer that or take the risk.

There’s almost no inventory especially in Lakewood. You are going to have a lot more potential buyers for individual two families (who bring their own financing) + will get a much better price than what you’re going to have to offer in a package deal to make it attractive enough. The only thing that offering the package is going to do is slow you down....if you do get a bite on the package, you’re taking them all off the market while you determine whether or not the buyer is the real deal. 

Also keep in mind that in Lakewood, your ideal buyer is the owner occupant. Most are buying for a nice place to live with return as a secondary consideration which is what drives prices up in Lakewood. 

Wrote an offer on a Lakewood duplex a couple of weeks ago that was small (about 900 sq ft per unit vs the standard 1100 or so) but priced correctly.   There were 4 other offers and I’m sure it sold for well over ask....all offers came in the first weekend it was available for showing.  Yours will sell quickly if in decent shape and priced reasonably.

Gino, overall I think Lakewood still works pretty well for a house hack in the low interest rate environment that we’re in.  I tell my clients who are looking to house hack that Lakewood is a relatively low risk investment that will get them into a good neighborhood with a very strong tenant base - but the trade off is cashflow when they move out of the house, especially if they are going to use a property manager.  

Values have certainly increased dramatically over the past few years, but that’s happened elsewhere and continues to (44111 zip code for example) so to me its really just Cleveland catching up.  We had (and still do to some extent) a really low cost of housing compared to the rest of the country.

Yes taxes are on the high side but that’s true throughout the area.  I have a single family in Fairview Park that’s valued about the same as my Lakewood two family and the taxes in Fairview are about $1000/year higher. 

You can’t change the location of a property, but other things will change in your favor over time.  Rents will go up and mortgage principal will be paid off.  To me for your first property, especially a house hack its better to make a choice based on location rather than cash flow. 

Many contractors will add a 2%-3% fee to offset their credit card processing charges, which is fair just expect it.  You’ll also pay the same amount (or maybe a little more) to access cash from your credit card.  

Definitely pay attention to the rewards program on the card you choose, the points do add up especially when you’re spending like a rock star on a renovation project.  I cash my points in for gas cards and can go for a good amount of time without any expense when I pull up to the pump.....

@Cesar Perini  I would strongly recommend coming to Cleveland (or any other city you plan to invest in) before you commit any $s or even start doing any analysis.  Different investors = different perspectives, so what might be a B neighborhood to another investor could be a C to you or vice versa based on your risk tolerance and desire/time available to deal with issues.  Also important to understand that the east side and west side of Cleveland are different and if you plan to invest in both, you may need separate teams on each side of town.  I can provide some insight on the west side - PM if you’d like to talk.  

Kiran, you’ll probably want to determine the minimum rate of return that’s acceptable to you and whether you’re investing for cashflow or appreciation before you try to narrow your search down to particular areas.

I’d consider just about all of Lakewood a B (maybe a few B- bordering on C areas).  Its a strong rental area that continues to improve with some new development and code enforcement which has also driven prices up.  You can invest there for good price stability, some appreciation and good tenants that will result in minimal headaches for you....but you aren’t going to get a lot of cashflow.  There are areas in Cleveland (just over the Lakewood border) where you’ll do a lot better with cashflow, have tenant quality that’s at least close but where you won’t necessarily see the same amount of appreciation.  So it depends on your overall goals and outlook.  

Russell's advice to move on and avoid VA buyers makes a lot of sense. There's way too much difference to try and make up. I've found that lenders can't do much to fight low appraisals, I believe because of lending regs that came out of the financial crisis designed to avoid the games that were being played 10 years ago. You're going to waste a lot of time and effort without much chance of success.

It is the appraiser, not the financing. I just sold one of my listings to a VA buyer at $2000 above the list price and it appraised fine. It also wasn't underpriced (if anything a bit on the high side as we're in a total seller's market here).

I sold an investment property recently where $70/month was added to rent. Total water sewer was added up annually and then settled up- either tenant owed landlord (based on 12 punts @ $70) or vice versa.  I give my tenants $75/month allowance and bill them monthly for anything over that.  Think I’m going to convert to annual method.  My method works fine it’s just a bit of a hassle to track and generate a statement every month.