All Forum Posts by: Jason Cory

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.

MLS deals depend on the market. Some markets don't have the activity others do. There will be reasons markets have activity vs markets that don't have activity. That's a simple deduction.

The easiest way to buy a turkey property without having much involvement that legally guarantees rent is to put a house under contract with the contingency to close once a Section 8 tenant moves in so you have a year of guaranteed rent.

If you buy with other guarantees from providers such as rent guarantees, buy backs, etc., you risk committing securities fraud. You can't make guarantees in Real Estate subject to the future and/or outcomes. That's an illegal practice. 

That's why you always see "estimates or approximations." Nothing is exact in Real Estate. Any statements to the contrary are false however, that doesn't stop people from doing it. They may be ignorant to the law or do it anyway.

I would recommend you call my agent in Birmingham & tell him to write your policy identical to mine. It covers fire, liability, vandalism, malicious intent by tenants, etc. I think it's around $60/mo. I pay by the quarter instead of monthly. 

https://agency.nationwide.com/tyler-f-watts-in-birmingham-al

You the 1st person I've ever seen say SFR doesn't have a cap rate. The appraiser in me has the violin playing, rainbows in the sky, etc. Seeing ppl call returns cap rates in SFR frustrates me to no end.

As far as appreciation with cash flow it is possible if you buy under the highest & best use. For example in Birmingham, the predominantly rental areas have low entry prices. The sales value appreciates at a lesser rate but because the value is low there isn't really anywhere for it to go down. You hunt for newly paved roads, new business in the area, habitat new builds, etc. If it experiences gentrification the market begins to allow for owner occupant sales & comps will start showing up in a retail setting. When you buy under the 1% rule in the suburbs you directly affect your own values when you purchase. Mr. Jones down the street tries to sell & the appraiser sees the sale, whether or not they include it, the tenant doesn't take care of the yard so Mr Jones potential buyer says, hmmm maybe I don't want to live here with that next door or down the street, the PM collects the rent buy doesn't drive by regularly to see the deferred maintenance eyesore the neighbors do. When you rent in owner occupied areas you are the reason the value stagnates. Mr Jones now has to sell to an investor at a lower price because no one wants to live next to the eyesore. Before you know it you have multiple eyesores in the neighborhood & values start their decline. 

In predominantly rental areas it's expected the tenant isn't going to cut the grass like an owner, maintain shrubs, etc. That's why it's a rental area & value remains stable until gentrification starts from the people on Mr Jones street mentioned above. They move, find ways to buy low then start taking care of the grass, etc., so that the others on the street start trying to keep up with the new standard Mr Jones is setting. 

Highest & Best Use always. Suburbs HBU is not renting & never will be. Not a single person that invests wants a tenant next door or on their street if they are honest about it. 

 Type in the company name or a version of it. It's for records & documents not locating a private lender for your business. 

 Tell em ha. 

This guy is all over Facebook trying to scam people. I especially enjoy when they use a gmail address. 

If he's done any loans in Jefferson County you'll find a record on the landmark site. 

http://landmarkweb.jccal.org/landmarkweb

Nice @Alpesh Parmar. You made a wise decision going to Grayson Valley. No city taxes since it's unincorporated. Be gentle in Centerpoint going forward. It had a good run once Huffman High School was built. Many in the city moved there because the new school was the shiny new object but rents have started to decrease and there is an over supply of available properties for rent and sale currently. You can still make money in Centerpoint but if you decide to invest there start lowering your purchase price to absorb the decline in the market. I'm not sure if it's a temporary over supply or if it will last. Clay-Chalkville and Pinson are in the area of Grayson Valley/Centerpoint and unincorporated also but similar markets to Grayson Valley.

This property has been well maintained over the years. There is a built in storm shelter and additional garage/shed with concrete block construction. A pass thru drive way with a 2 car attached carport. Drywall is behind the paneling in the rooms where paneling is present. HVAC, roof, and flooring are all in move in condition. The house is a little dated however, no mandatory repairs noted. It could use some updating to get the maximum estimated rent.

Estimated Rent amount to be approximately $800-$900.

Property Link

@Mazen Al Ashkar It's the appraiser in me. All about value every time with me. Thank you for the compliment.