All Forum Posts by: Jason Cory

 I'm in Birmingham. It is possible they are active in here but I've never heard of them. 

If anyone makes a guarantee in Real Estate its fraud since it's illegal to guarantee anything with an investment, rent or otherwise. 

Purchase a home from an investor that has finished the renovation then order an inspection & appraisal. 

You never want an existing tenant passed to you because you don't know the history or actual quality of the tenant. Place your own tenant or have the PM place them based on your criteria. The tenant is arguably more important than the property since it's the way you cover expenses monthly & in turn make money.

Avoid Bessemer, Brighton, Lipscomb, Titusville, & Midfield. 

Also avoid certain areas of 35207. Some areas of the northern section of 35207 are alright.

Any other areas within the city limits are ripe for the pickin. 

You should also look into corelogic. They recently bought the software a la mode that appraiser's use. It's only a matter of time before they have enough data from actual appraisals to provide the data service. It will be a better market when square footage, bed/bath, etc., comes from actual eyes & measurements used in the valuation process instead of courthouse records or agents. 

Google has an add-on for spreadsheets that will drop pins on a map. Color code the pins by sales price (under $50k, 50-100, etc.) Then do the same for rent amounts. Try to do a historical for prices & rents using the same colors.

You'll see appreciation or depreciation for price & rent like you were looking at a monopoly board overlaying the city. 

If that doesn't work for you call an appraiser in the market. We get around & have double top secrets on how to analyze data.

https://batchgeo.com

I'm in Birmingham & used to appraise before investing. I'll be glad to help you in Birmingham.

I am located in Birmingham. I'm an investor that previously appraised Real Estate. 

Be careful of investing in Pleasant Grove, Hueytown, & Centerpoint. These areas used to be primarily owner occupied but in recent years have changed to more primarily rental areas. Prices are dropping as a result.

Here is a post I made defining each area of Birmingham. 

https://www.biggerpockets.com/forums/48/topics/549776-birmingham-market-by-class

 It costs money to move. People in B/C areas can afford to move. Lower income can't afford to move often.

Section 8 vouchers are yearly. They renew each year for a year not month to month.

If they owe a utility company, landlord, etc., the housing authority won't issue a new voucher. 

War zones is the PC way to say I'm better than them. It started from the same investors that buy B/C areas now to have a similar class of people as them as tenants because they didn't keep the house up because they were better than the tenants.

Tenants are scared to lose their assistance & are more under control if you treat them like people instead of the I'm better than you philosophy.

Area does matter because in lower income areas you only have a tenant pool, which drives rent up. In B/C you have an owner's pool, which drives sales comparison value up.

There is a mother for every mailbox. Are the mother's renters or owners? It's that simple. 

 That is the method I follow because investing in rentals is for cash flow not flipping. The value that most are buying at is the flipping value since the higher value in B/C areas is the sales comparison. That's why the bills are high & the cash flow is low. 

In rental areas the bills are low & cash flow is high. You don't have owner occupants in rental areas so sales value is lower. Income is higher in comparison. 

Sales value = I intend to sell it.

Income value = I intend to rent it.

It's easier to get financing on B/C areas. That's the number #1 reason they are purchased. They are easier to finance because there are owner occupied retail comps. 

Square peg in a round hole. 

Regardless of area, if you keep the house up the tenant stays most times.

Invest for cash flow not because it's pretty & because everyone else is doing it.

Only property Buffet owns are trailer parks. Low income & areas but high cash flow.

Only property Trump owns are nice. Bankruptcy 4 times.

I literally explained this earlier today in another Birmingham post earlier. Copy/paste below...

I keep noticing people saying you have to hold properties to make money or trade profit.

As a former appraiser I'm going to tell you what your lender is going to do regardless of area.

When you buy most times it's vacant so the value requested in an appraisal is the sales comparison approach. It's the wrong value to use & the wrong approach for you, the buyer. It's the highest value that you'll receive, as vacant, so it looks like a great deal on paper.

Unfortunately, if you need to refinance or sell with a tenant occupying the property your lender will request the income value with rent comps & a rent schedule to be included in the appraisal. The income value will be different than the sales comparison approach. It will be lower in predominantly owner occupied areas because it's not the highest & best use of the property. It fails 2 of the 4 tests in the HBU, maximally productive & financially feasible. When the lender bases the refi on the income approach (since that's its current usage) the paper equity you thought you had is gone because they originally lent you money based on the sales comparison approach not the income approach.

For example, lets say you purchased a house for $100,000 with the appraised value (sales comparison approach) being $125,000. That appears to give you $25,000 instant equity.

Let's say you refi in 3 years. Your rent amount is $1,000. You bought in a C area. Instead of annualizing the GRM multiplying the rent x 12 & dividing the GRM by 12 to get the value do it monthly because it's easier to understand but yields the same income value.

Monthly

$1,000 (rent) x 75 (GRM - C area) = $75,000.

Annual

$12,000 ($1,000 x 12) x 6.25 (75÷12) = $75,000

If you buy this way that's why you're told to hold properties because the value in the appraisal wasn't the intended use of the property therefore, it's the wrong value. Instead of having $25,000 equity you start $25,000 in the hole.

If you want to realize the sales price of $125,000 it has to be vacant, renovated again, & sold to an owner occupant to match the stated value of how you purchased.

If you sell tenant occupied it would be to another investor that's not going to pay retail or care how much you owe. They buy to invest also.

On the other hand if you buy in a predominantly rental area the following example is used.

Sales Comparison value of $50,000 (sales comparison is included in income value appraisals even if it's not the highest & best use. Its standard to be included)

Let's say it's a D area. Rent is $750 a month.

$750 x 65 = $48,750

Buy based on the correct value & property usage.

Buy as if you have to sell tomorrow.

Be able to sell tomorrow if you wanted & make a profit. That's investing. Holding for appreciation is prospecting. Every 7-10 years there is an economic downturn. That's when you would be selling based on advice I see given a lot on BP.

It makes no sense to buy for a 1% rule because you're buying for a different usage than what you will be using the property for but you are funding the business of the investor you purchased from that is selling based on the 1% rule because they sold based on the wrong stated value in the appraisal for the intended use that is different than what you plan on doing with the property.

I've appraised hundreds of these in my career & its caught many unsuspecting investors with the pants down so to speak.

If you're buying ask for the income value, rent comps, & rent schedule to be included in the appraisal when you purchase. Don't get caught trying to refi or sell occupied & think you'll get the sales comparison value. It won't happen.

Best of luck to you investing. Be sure you match value with intended use & highest & best use before you buy a property.

End copy/paste

Use those 3 as lessons learned. Start new with a portfolio loan with new properties buying strictly based on the income approach. Avoid B/C areas or you'll be in the same position. Stick to predominantly rental areas. Low entry, higher cash flow. Materials used for renovations are cheaper. Find properties with low maintenance Materials - brick, hardwoods, etc. Use the $2-3k as down payments. If you're spending $30-40k per house you're buying one every other month. Mortgage payment, insurance, & taxes are lower but rents are $750+. In Birmingham that should net you $400+ per month for each. If you decided to sell you'll be able to because even in the event of a downturn in the economy more people have $30-40k to buy a property instead of $100k.

You win Monopoly owning the St. Charles section instead of Boardwalk. Monopoly is a cash flow game. Follow the same principles. You're playing the adult real life version. 

 You can request the appraisal because it should come from your lender. Just direct your lender to include the income approach with rent comps & a rent schedule when they order the appraisal. It's usually  $100-$150 more than the standard appraisal. You get the cost approach & sales comparison approach in every appraisal.

Rent comps compare & adjust the rent amount for comparables when compared to the subject property. 

Rent schedule evaluates carrying costs & depreciation to schedule what you should put back in reserves each month. 

If buyers requested all 3 approaches to value with rent comps & rent schedule they would likely shard themselves by understanding they met a good salesman but they are underwater while occupied because it won't sell for what they paid for it while occupied. 

Some know they are selling this way & don't care they are ripping off investors. Others simply don't know there are different values based on usage. 

Also, very few tenants remain in properties long term so a rehab will likely take place at least twice in 7-10 year period. That's why it's important to buy right & with each creating more cash flow than $100-$200 a month. 

Most minimum loan amount are $50,000 for a single property. 

A few lenders minimum amount is $50,000 but it's an umbrella loan or portfolio loan. You could have 5 properties within those to equal the $50,000 minimum amount. 

1 house for $100,000 that nets $200 a month or 3-4 for $100,000 that nets $1,250-$1,750 a month. It's easy math in my opinion.