All Forum Posts by: Brad S.

It's not just about "livable" sf, it should be "legal" sf. Meaning, legally permissible per zoning and building standards and permitted as such, per local zoning/building codes and inspections, etc.

I am a longtime appraiser and broker, but no where near the Cape area. But no matter, if the area is not legal living area, than it isn't part of the main sf. It still may have value, but that is up to the market and @Heath Coker would be better at telling you what potential market value that area may have. Also, these situations sometimes present good opportunities, if you can get those areas to count as legal sf after purchasing at a discount.

Also, I used to be a local deputy assessor, so I have some insight into assessing as well. I believe most areas do it relatively similar, so, on that note, I would never take what the county reports as 100% legal gla (gross living area). Those are not necessarily the same thing. As an assessor, I was taught to assess what I see when I was out in the field and put a use code based on the "use" I observed, not necessarily the legally permissible use, etc. Therefore, whenever I do a local deal, I typically go out and measure it myself and verify the actual permit records, if possible, to know exactly what I am buying. 

That said, if they are marketing it with that additional 500sf and you like the deal based on that, I would make the contract contingent on the property legally being that size and built to code, with permits, etc. Then when you get/find confirmation that the 500sf isn't legal sf, you can attempt to negotiate and see if they are willing to budge. They may not be, but either way, they are now obligated to disclose any facts uncovered, to new buyers. 

Is this a FSBO or is there an agent involved? If it's a FSBO, you may want to inform them of their duty of disclosing, when you find out the info.

I'll also add that it may help to be clear on the difference avenues you are contemplating. You mentioned str's, reno houses, etc. Understand that an str is a hospitality business which may have real estate as part of it's assets, but it is not purely a RE investment. And reno (flipping) is a short-term business with inventory and other operating demands, requiring different sets of skills and knowledge. etc.

A certain amount of that feeling is healthy and will keep you focused and sharp. But, too much of it will keep paralyzed and have the potential for regret on opportunities lost. So, there is probably a happy medium where you prepare yourself enough, but maybe also have some backup plans, and/or partner with someone to help spread the risk.

I will say that probably in most of my deals, I have had some level of trepidation. But, that also motivated me to look at those deals from multiple sides, until I felt there was very minimal ways of losing. Basically, I just couldn't find a reasonable reason for not doing them. And generally, that has served me well. So, some good advice would be, get to the point where you feel confident to "Feel the Fear, and Do It Anyway." That's also the title of a good book which I read decades ago.

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Here's some insight from chat:
"
* Use fear as a prompt to stress-test your assumptions.
* Don’t wait for zero doubt — wait for no reasonable objection.
* Backup plans and partnerships can turn “maybe” into manageable.
"

Based on what you described, you sound like a "dealer" as opposed to an "investor." It sounds like you purchased those "flips" with the sole intention of fixing and flipping them. This would seem to make those houses your "inventory" in the IRS' eyes, not investments. And each one of those classifications have a different impact on your tax liabilities. You should probably find out what the implications of each of those classifications are. Among other things, if you flip as an individual, your potential depreciation benefits on any rental property you hold (or plan to hold) may be at risk. This is why I do all my flips in an S-corp and hold my rentals separately.

Do research, ask cpa's, including other than your current one and choose wisely.

Hey Dan,

I think maybe the first part of my post wasn’t clear. I wasn’t referring to the value specifically. What I was explaining is that in a typical 2–4 unit appraisal, the rent estimate is usually developed as part of the income approach — but that approach is mainly used to support the sales comparison, not drive the valuation.

So the rent estimate isn’t some deep-dive into the subject’s units’ rental potential — it’s there because it’s required to complete the income section and support the overall valuation. The focus is on the full valuation, not just the rental estimate.

For SFRs, it’s different. The rent estimate is usually provided via a separate rent schedule and is specifically focused on the subject property, without being tied to the valuation itself.

Also, appraisers typically don't know or care what loan product the report is being used for — DSCR, conventional, whatever. It doesn't change the approach. If a lender wants a more targeted rent estimate, they should order a separate rent schedule or make a specific request — which most don't.

And yes, I’m very familiar with DSCR loans — I’ve got a few myself. Like you, I hit the FNMA loan limit and then exceeded it after the GFC, when they reduced it. Unfortunately, DSCR loans weren’t a thing yet, so it definitely caused me some problems.
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And my previous bullet points had some specific insight and items the OP can use to possibly assist in the reconsideration of the rental estimates. 

Anyway, hope that clears things up.

Ok, let me give you some insight from the brain of a longtime appraiser (that’s me — also a broker and investor).

For 2–4 unit residential properties, appraisers usually base their value on comparable sales — not the income approach. So estimated rents often play a smaller role than you might expect. In most cases, the appraiser might use the income method (like GRM) just to support the value they've already developed from sales comps — not to drive the value.

Also, rents can vary a ton with 2–4 unit properties, and consistent rental data is hard to come by. The appraiser probably wasn’t thinking about how much those numbers impact your loan.

Here are a few points that might help explain where they’re coming from:

• Rental data is way less available and less standardized than sales data. A lot of rentals are off-MLS, and there's no reliable place to find actual lease amounts. MLS sales, on the other hand, are verifiable and trackable.

•  If your unit had more or fewer bedrooms than the comps they used, they should’ve adjusted for that. If they didn’t, that’s something you can raise.

•  Active rental listings don’t carry much weight. They just show what a landlord hopes to get — not what renters are actually paying.

•  Some appraisers only search for rentals in the exact same property type (like just duplexes), but in reality, most 2–4 unit rentals pull from the same tenant pool. So it’s reasonable to look across all 2–4 unit types for rent data.

• Others may only search for rentals that are labeled as such in the MLS, instead of looking at recent 2–4 unit sales listings that might mention actual or contract rents. Those sales can be goldmines — sometimes one quadraplex listing gives you 4 rent comps.

•  If those listings include real rent amounts (not just projected), you can even call the agents to verify. That adds weight to your case.

If you decide to challenge the appraisal, just think of it as helping the appraiser — not correcting them. Bring new, solid data they might’ve missed. That makes it easier for them to justify a change based on facts they didn’t have before.

Hope this helps. Good luck!

As a Broker myself, this does seems to reflect multiple violations. Here's what chatgpt had to say.
"

1. Agent's Breach of Fiduciary Duty

• If the agent was actively representing the investor as a buyer’s agent, they owed a fiduciary duty — meaning they must act in the best interest of their client.

• Purchasing the same property for themselves — especially without disclosure — is a clear conflict of interest and, in many states, a violation of real estate law unless fully disclosed in writing and approved by the client.

2. Failure to Disclose Material Information

• The agent withheld updated info (a new, favorable rehab bid from the contractor) after the walkthrough.

• That info might have changed the investor’s mind — and since the agent knew it, failing to relay it is a material omission.

3. Misuse of Client's Resources

• The agent leveraged the investor’s driving for dollars lead, and used the investor’s contractor to further assess the deal for their own benefit.

• That crosses a professional line. The contractor relationship and property lead were initiated by the investor.

4. Deceptive Conduct

• Based on the agent’s language during and after the walkthrough ("should probably pass"), it appears they may have influenced the investor’s decision to step back — while already considering the deal for themselves.

⚖️ Real Estate Ethics Perspective

If the agent is licensed (which they must be if they're acting as a buyer's agent), they may have violated:

• Duties of loyalty and full disclosure

• Conflict of interest rules

• Self-dealing prohibitions, if not disclosed in writing

This could be grounds for:

• A complaint to the state real estate licensing board

• A complaint to their broker

• Disciplinary action, depending on state law and evidence

🧠 Lessons & Recommendations for the Poster (or Others Reading)

1. Always clarify up front whether your agent is also an active investor — and if so, ask how they avoid competing with clients.

2. Use a written buyer’s agency agreement that outlines duties, disclosure obligations, and commission arrangements.

3. Keep control over your own due diligence process — including contractor communications, inspections, and leads.

4. Consider exclusive buyer’s agents who don’t acquire properties themselves.

5. Document communication with agents via email/text so there's a record in case of conflict.

📌 Conclusion

The agent in this situation acted unethically, and possibly illegally, depending on the state. The investor may have technically said “pass,” but the agent’s failure to disclose updated info and their own purchase intent undermines the fairness of that decision.

It’s a cautionary tale for new investors: work only with agents who are fully transparent and aligned with your goals — not competing with you behind the scenes.

If you'd like, I can help you write a public or professional comment in response to the post."

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $900,000
Cash invested: $350,000
Sale price: $1,600,000

This was a good solid project that came out great! But, as can be typical, there were some hidden and unplanned issues which needed to be addressed during rehab, causing additional costs and time. In the end properly addressing those issues were a very important factor in selling the house very quickly. This property had an amazing one-story layout that I loved, but, I may be biased, since I grew up in a similar mid-century modern style house.

What made you interested in investing in this type of deal?

A good solid area that I knew well. This property had great bones and size and didn't need any additions, just a major rehab.

How did you find this deal and how did you negotiate it?

Off-Market deal presented to me from a Broker contact of mine. I did have to compete with a few of his other investors, but I saw more opportunity than they did.

How did you finance this deal?

Private Money Investor.

How did you add value to the deal?

Full rehab, some new utilities (electrical, plumbing), some areas were gutted to studs, new beam to open up some living areas, all new finishings, and interior, redid entire backyard and pool, etc...

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, me and yes, I would highly recommend me. :P

.....The system won't let me add pictures right now. I'll try later.

Yes, you can structure however you want - as long as it is legal. But, I would look into doing a lease-option (L/O), where you offer it to someone who would not be able to afford a down payment, but they can afford a higher than market rent. You can market it for sale as "no money down" "no down payment needed" etc, and then explain it to interested people. You can possibly ask for a higher than market rent and credit part of it to a future down payment - if you choose to. There are some people that have good cashflow/income but can't traditionally qualify for a loan, so this may work for them.

The benefits of doing it this way is you get more people interested, who would not otherwise think they could buy a house and also you keep control of the title, until the tenant/buyer is able to qualify for a loan and complete the sales contract. If you sold it as an owner carry/financing, as you mentioned, you would have to go through the foreclosure process if they stopped paying you. If you set up a lease/option correctly, you only need to evict them, as a typical tenant. But, you need to check the laws in your state. As an example, TX has some stringent laws with respect to L/O's.

I'm not going to go through all the details on L/O's but there should be plenty of info available online.

Good Luck!

Quote from @Scott Mac:

Hi @Don Konipol

That seems like a really well thought out plan, I was wondering what your thoughts are on the seed money needed to get the investing portion off the ground???

Because that can be a stumbling block for some, the financial seed capital needed to get going, and what to earmark it for in the budget.

You don't need seed capital to invest in RE, you need to have or offer "value." First, let me say that YES, having your own money does make it easier, but it is not the most important aspect.
There are many people that have plenty of money, but don't have the time, knowledge or desire to put the work in to find the value in a deal or even longterm investment. And they would be very open and willing to provide the money if you provide the value. 

I'll give you an example: If you found a great deal, maybe an undervalued, off-market property, requiring moderate work, that a seller needs to sell quick at a hugely reduced price (60% of market value), you would probably have to beat off all the investors willing to throw money at you to either acquire that deal from you or partner with you on it.

Yes, those deals aren't all around for anyone to find, but they do exist. I and many other experienced investors all have similar experiences to prove they exist.

Anyway, the point is focus on value - how you can build your value, how you can find value in a deal, etc., not just money.

Remember that money doesn't always mean value, but value will always attract money.