All Forum Posts by: Patricia Miller

Being new to this, I may not have been clear about my concerns in the post. I am the buyer, not the seller. My concern is that I have made an offer that is far over the value of the home via the escalation clause. Part of me is hoping the appraisal comes far under so that I can negotiate with the seller to lower the price (or I walk away and start all over again) and part of me hopes it appraises near value so I can feel justified in putting a little more into the property (2003 build with no remodeling) to make it more attractive for a future sale or rental. If a lot of sales are happening far over appraised values, I'm wondering how that is going to play out in the future. The population influx and housing shortage in Denver will keep things afloat for awhile, I'm guessing.

Thanks a bunch, @Dan Mackin - your advice is always clear, concise. It is tempting - despite warnings - to speculate on what properties will be worth in 6 months to a year. However, since we offered $14K over asking which was $199000 (invoking the escalation) I am set to reject the final deal with an appraisal that falls below the difference we stated we were willing to make up... unless the buyer will come down to that amount, of course. I think I have learned, otherwise, that beginning an investment "career" should not be done in April, May, or June. I kind of knew that, but got a little overly impatient.

@Joshua Meyers I'm seeing plenty of properties selling anywhere from a few thousand to $25 K over asking without knowing what the appraisals were -- so I was wondering!  I've lost out on a 10K under offer (embarrassing attempt for here in Denver), a cash offer of 6K over, and a 25K over with escalation clause. Apparently it was a "tie", but our stated reluctance to make up any sizable difference in appraised value left us short on that deal. (Dodged a bullet on that one, I think) Then I ask myself - just because some are willing to do it, does that make it a wise choice?  (A fair analogy might be following the herd of cattle over the cliff.) An experience investor will likely see when to back off.  As a new investor I don't want to go too far off the path (or close to the edge, whatever that is). 

Given the largely terrible rent/purchase-price ratio we are seeing in these suburbs (some worse than others) - I figure that in the case of our current pending purchase, I would have to hang onto this property a bit until either rents go up or property values rise to a level that justifies fix and flip or BRRRR. However, since we can use this as a "2nd home" for the short term to justify the uncertain status of its investment potential (with a family member paying low rent to cover costs) we can pretend this is house hacking to convince ourselves we have launched!

It will be another few weeks until our appraisal comes through - thanks for the feedback, all!

I'm wondering if those who have made deals in the last 3-4 months in the Denver suburban area are finding that sales prices and appraised values are way off. My impression (as an inexperienced investor spending a boat load of time looking at MLS results and listings) is that the frenzy for buying properties has been driving up sales prices (folks paying well over asking costs in some cases) and possibly inflating asking prices as well. I have heard that about 1/3 of the offers/deals fall through - maybe that is typical across the country - and I'm wondering if that is due to any one factor over another, including discrepancies between offers and appraisals.

I am currently waiting on an appraisal with the clear feeling that I am going to be looking at a low appraisal. However, due to our escalation clause and stated willingness to pay x-amount over appraised value, I'm getting more nervous as the days go by. 

@Brandon Turner recommended we take action. So, I did! After 3 rejected deals, I landed one. Apparently it's OK to screw up on your first deal - so I'm expecting that to happen, but hoping the appraisers are stepping up values as home prices go through the roof!

Wow... thank you everyone: @Travis Sperr @Tripp Howell @Russell Brazil @Elizabeth San Miguel @Matt M.  I have just now learned (maybe you all already knew this) that the law has just changed in the last few weeks regarding warrantable condos. Apparently, a condo purchased as a primary or secondary residence CAN but purchased with your typical conventional financing even if owner-occupancy is below 50%.  Now that it has been clarified that I can buy the property as a second residence, the lender I was using can, in fact, offer me that financing. Initially, when we found out the condo was "non-warrantable" - the lender thought I was doing an investment deal and he could not lend to me in this situation. Even though this purchase will eventually be an investment property (I will make that adjustment at a future date - too hard to explain here) I can, in the interim, buy it as a residence and make the improvements I wish to make and then go from there!

I thank you all again!

BTW... opinions about condos as investments in small associations (this one has 34 units)? I know that there can be HOA snafus anywhere, but perhaps this scenario has additional risk...

Help! Advice please... After 4 offers, I have finally won a bid on a small condo in Arvada. Turns out, the listing was for Conventional or Cash loan. Also turns out that the small condo association has 34 units - 22 of which are rental which creates a "non-warrantable" situation from the lender's point of view. We had requested HOA docs in advance and didn't get them. (OK... so we should not have made our offer without them). This is on top of the fact that we offered an escalation clause that beat out another offer. That offer was with only 10% down - and most likely that person didn't know the condo was non-warrantable, either. (They also should have asked). However, it was the offer from this person that jacked up the selling price $14K over asking price. Who knows if they would have qualified for a higher interest rate or the terms required for a lender willing to do a non-warrantable property.

Anyway, the conventional lender I was using has to back out under these circumstances. I am scrambling to find another lender. But, it sounds like all this invalid anyway because the non-warrantable business was never stated anywhere upfront. Should that have been in the listing on the MLS?

Looks like this needs to be a complete do-over - in whatever form that may take.

Looking forward to reading these because I am now at 3 strikes - 3 offers for 3 different kinds of properties - none accepted. Of course, I am only doing MLS at the moment - clearly, not the way to go in Denver. Still learning...

Yes, @Brent Coombs that helps enormously! It is one thing to know which numbers to plug into which formulas, but in the end - understanding the useful application of these calculations is the most important piece. The reason your explanation is particularly helpful to me is because, in truth - I might be doing a live-in reno and decide to hold it for rental income, or if the market seems to point to a more profitable solution - I could sell it. Meanwhile, I have a place to live, albeit, short term. 

The market in Denver is changing (as it is everywhere, I'm guessing) and the particulars of the job market, housing availability, and population fluxes makes for unique and dynamic circumstances. Moreover, good properties go very, very fast -- there are a lot of investors and people needing housing -- so there is a lot of competition. One needs to be clear about intended outcomes before making a purchase to avoid making big mistakes.

Because I am not currently set on needing the cash flow for the short term (next couple of years, or so) I am seeing that if I can look at a property from different angles, using the APPROPRIATE calculations, I can make better decisions. Eventually (within 5 years), cash flow with "passive income" is a solid goal. I can either start building that now with buy-and-holds or build equity through flips and have more to play with in a few years. At least, I think that is a reasonable strategy, assuming I can properly understand the implications with each purchase!

Thank you @Mindy Jensen and @Jeff B.

@Wayne Brooks and @Bill S. Thanks for all the feedback. Can't put the feedback in my spreadsheets, but I can certainly put the qualitative perspective on the table when I sit down and make that first purchase. 

I see your point, Wayne, regarding hours of labor. As an artist, I am used to a very poor "return" in hourly rate so I guess I fail to consider that. Not sure, however, if I worked 40 hours/week at a desk job for 50 weeks and earned $100,000 how a COC would be calculated. (Or even if it is a good metric). Labor, perhaps, has a cash value, but how much? What is the cash inflow in this example (before the job begins) - especially since no cash has changed hands? Is it the same as the cash invested in a property?

I was under the impression that simple ROI (e.g. 10K in and 30K out) and COC provide an entirely different level of information - COC being much more comprehensive and therefore providing a better picture of the quality of the deal. As part of due diligence, I thought COC was essential.

Some of this discussion is actually more philosophical - forgive me for spinning off. However, because I may be considering transferring money from equities in retirement accounts to REI, I want to be dang sure I am not getting less from my investment. You see, I truly don't like to just plug numbers in formulas. I want to really understand what any formula means - then maybe I can get the big picture piece, which, perhaps, shapes the final decision.

 @Bill S. - not helpful. In 5 days I am traveling to tour an area. My (self-imposed) deadline is very real. There are many options for strategies. Having limited knowledge about how this all works is somewhat  unsettling and given that I don't have the same amount of time on my side for making mistakes (and recovering from them) as a younger person would - it seems foolish to throw caution to the wind and dive in because something "looks like a good deal" on the surface. Also, I am using precious limited funds on this gamble. Still, I'm willing to move forward. I will continue to muck away and hopefully will find some clarity to make that first purchase and feel at least some confidence that I am not being a complete fool.