All Forum Posts by: Brad S.

@Heather Kiddoo

Mrlandlord.com

** Value adds - additions, renovations, development, reconfigure outdated floorplans/characteristics, etc. 

Examples: Large 2 bedrooms house, convert to 3 bedrooms and/or add a 2nd bath without an addition, house with unpermitted conversion (enclosed patio/porch, etc), legally permit it to add sf for little cost.

fix/flip or build - Find distressed properties under market value (they are still out there, even now), demo and rebuild to modern standards, then sell and tfr that money to a cashflow property and put more money down with your new found profit. Then you can put more down and get cashflow, since you have "new-found" money.

Add ADU in markets that allow them, if done well they can bring in more than 1% cost/rent returns, and adding together with the main house purchase, it may contribute to reasonable cashflow.

Reposition a property in the market - find a stigma'd property and "un-stigmatize" it. Find a property with a marketing "issue" and devise a plan to fix the issue. ...can't think of a good example at the moment, but they are out there!

**Be Creative - Find someone who has good terms but needs to get out of their responsibility and do some creative deal transacting. Like you mentioned - lease option, owc, subject-to, etc 

** rent by the room, str, mtr

People are speculating, if all they are doing is buying and hoping for appreciation. That worked well for a while, but now the tide starts to recede and we will see who is swimming naked.

Nothing wrong with speculating, especially if it is done with some well researched underlying data, but this current market and the potential upcoming trend/s don't seem to be the best time for it. This is more of a "create value" market, where skill will triumph over luck once again. Luck is harder to find these days.

Quote from @Aswin Easwaran:

Quote from @Brad S.:

Quote from @Aswin Easwaran:

 The in-law is connected to the main dwelling through a door and I was wondering if I could open up the wall, make improvements to the in-law to conform with main dwelling standards and have this added to the square footage of the main dwelling, something very similar to the process of adding square footage to the house. Is this possible to do and get it refinanced for a better valuation, considering there are reasonable comps around?

The quick and dirty answer is YES, based on what you describe it is possible and may make more sense. I am a CA based appraiser and broker, so here are my thoughts.

* The studio should be legally permitted as part of the main gross living area (gla), If it isn't, it will most likely be valued as an accessory structure (studio), even if it is contiguous and the same condition/quality as the main gla. I do see you mentioned having it permitted toward the main gla, so that's good. 

* Functional - it should be functional as part of the main gla, or the valuation may not be maximized. One example is a tandem bedroom - where you need to walk through one bedroom to get to the other. That is called functional obsolescence and will be looked at negatively. That is only 1 example, so just keep in mind it should flow well and be functional with the rest of the house. 

* I would think about remodeling the studio with the idea of easily converting it into a separate functional adu later. Some ideas are: make sure the bathroom is large enough and at least a 3/4 bath (with shower). do the rough work for a kitchenette - bring in plumbing, electrical, possibly gas hookup, etc. One way to do this is to put a wet bar and/or laundry in the existing studio. Those are ways to legally get the proper utilities for a future kitchenette, that can easily be converted later. You may want to also think about being able to easily cut off the studio area for a secure private adu later - by making the wall easy to replace (if you remove it) or put a solid door that you can put a double sided lock later, etc.

This way you are ready to readily convert the studio to a functional adu, should you choose to rent it out separately. 

But, as to your original question, once you legally add the studio gla to the main gla, the appraiser should be comparing your house to other relatively similar sized comps. This should help raise the valuation.

 Thanks for your inputs @Brad S.. My plan resonates with the steps you outlined- have accessory structure gla added to main gla through city permits, refinance, add a full kitchen to the studio,pull permits as ADU and hold. This is going to be a long term hold so the permitted ADU should get better cash flow than a studio with no kitchen. The studio is around 850sqft standalone, so there is a possibility to add a bedroom to it as well (already has a walk in closet plus 72sqft full bath).

I might have to consult an appraiser to look at functional obsolescence as you’ll have to walk through the kitchen to get to the studio, so thanks for pointing it out.

Really glad you were able to chime in - thank you so much for your time in looking at this.

Happy to help, and feel to reach out directly, if you like. 
Walking through a kitchen to get to another area is typically not a big deal. That's actually fairly common with houses with service qtrs or multi-generational suites, etc.

850sf is a large studio, if it is fairly open or easily reconfigured on the interior, you should be able to get a 2/2 from it. That would be preferable. I just designed an 800sf 2/2 right now, with comfortable space for both bedrooms, baths and kit/lvg area. 
Sounds like a promising project!

Quote from @Aswin Easwaran:

 The in-law is connected to the main dwelling through a door and I was wondering if I could open up the wall, make improvements to the in-law to conform with main dwelling standards and have this added to the square footage of the main dwelling, something very similar to the process of adding square footage to the house. Is this possible to do and get it refinanced for a better valuation, considering there are reasonable comps around?

The quick and dirty answer is YES, based on what you describe it is possible and may make more sense. I am a CA based appraiser and broker, so here are my thoughts.

* The studio should be legally permitted as part of the main gross living area (gla), If it isn't, it will most likely be valued as an accessory structure (studio), even if it is contiguous and the same condition/quality as the main gla. I do see you mentioned having it permitted toward the main gla, so that's good. 

* Functional - it should be functional as part of the main gla, or the valuation may not be maximized. One example is a tandem bedroom - where you need to walk through one bedroom to get to the other. That is called functional obsolescence and will be looked at negatively. That is only 1 example, so just keep in mind it should flow well and be functional with the rest of the house. 

* I would think about remodeling the studio with the idea of easily converting it into a separate functional adu later. Some ideas are: make sure the bathroom is large enough and at least a 3/4 bath (with shower). do the rough work for a kitchenette - bring in plumbing, electrical, possibly gas hookup, etc. One way to do this is to put a wet bar and/or laundry in the existing studio. Those are ways to legally get the proper utilities for a future kitchenette, that can easily be converted later. You may want to also think about being able to easily cut off the studio area for a secure private adu later - by making the wall easy to replace (if you remove it) or put a solid door that you can put a double sided lock later, etc.

This way you are ready to readily convert the studio to a functional adu, should you choose to rent it out separately. 

But, as to your original question, once you legally add the studio gla to the main gla, the appraiser should be comparing your house to other relatively similar sized comps. This should help raise the valuation.

I'd first digest what @Dan Beaulieu said. 

Some reasons for few comps could be low turnover, since people may not sell their houses in that area, they may stay for along time and pass properties down to relatives (generational) or the transactions may be mostly off-market, pocket listings, etc. But, those explanations are less likely and it depends on the area. If it's Nashville, I am assuming it may be more of a rural area with low density. Best way to find out about the market is ask a local realtor who is active in that market.

But, the procedure for dealing with a situation like this, for valuation purposes is doing all or a combination of the following:

* Go back in time to find older sales and determine (calculate) any market trend differences (appreciation/depreciation, etc) since then and adjust those old sales.

* Go to the nearest relatively similar market area and find recent comps there. Then determine if there are any market differences for location (i.e. do the comps in that area generally sell for higher or lower or the same as the Subject's area, and adjust accordingly, etc). 

* Cost approach - do a cost analysis of the Subject (calculate an approximate cost to build, subtract depreciation, and add estimated land value (whole 'nother discussion) and add the appropriate entrepreneurial profit

There ya go, that's the quick and dirty method, but if you don't have the data, knowledge, or skill for those, just ask a few local realtors.

if you are looking for LTR property management companies, I have had good luck searching on https://www.narpm.org/ (National Association of Real Property Managers). A national PM association that has designations, training, etc. You can search for property mgrs close to the area you are interested in and I suggest looking for those with certain designations (MPM, RMP, etc), that shows they have gone above and beyond to educate themselves and are committed their business. Then contact them and make sure they manage your type of property and in that area and then ask for references of past and present landlord clients. Call the references and ask them pertinent questions (you can search online for questions to ask). Check out their fee schedules and make sure they seem reasonable. Remember, you aren't necessarily searching for the cheapest PM's. Cheap PM's can turn out to be expensive.

If you are looking for str mgmt, I had good luck with itrip.net They have franchisees in different areas which run their own business. I used them for my Austin condo, when I had it as an str. I was happy with them, although it didn't bring in the amount of money I wanted, so I turned it back to an LTR. That might've been somewhat of a function of management not promoting it properly or enough, or it may've just been the market. But, either way, I did feel that they took care of everything and I didn't worry about anything.

Good Luck!

Well, I don't know at what rate personal property is taxed at, but I would guess it is different than real property. So, I would check with the CA Dept of Housing and Community Development, I think they handle the registrations/tfrs of mobilehomes/manufactured homes. Then you can allocate the amounts more advantageously for you. 

Property taxes are 1% of the assessed value + local indebtedness and other fees they include on the tax bill, typically around 1.12-1.18% of assessed value.

Quote from @Sam Leon:

I will go ahead and try to get some pictures and videos if possible to document the other property's conditions at sale.

I just don't know if the buyer's hired appraiser will talk to me.  I do think there is no harm to try and provide information that may be relevant to his client.

Good Point, so let me clarify something so you can approach the appraiser properly. We (appraisers) cannot talk about our OPINIONS with anyone other than our client. the client for lending transactions is the Lender, not the Buyer. But, we (appraisers) can discuss FACTS. So, just approach them that way, with facts. And let them know you just want to provide some facts to them, they may not be aware of. Remember, you are trying to provide factual information to help them form their opinion.

Quote from @Llewelyn A.:

 You can use an Excel Spreadsheet to get the COMPOUNDED Appreciation Rates easily. Here is a snapshot with the Formula you should use:

To the OP, you SHOULD use Historic Appreciation Rates as one evaluation.

HOWEVER, the best FUTURE Appreciation Rates are the ones that use can figure out intelligently.

For instance, what are the major developments happening in the target area within the next 10 years? What are the migration Patterns? What Legislation is being supported and likely to pass (for instance, rent control legislation will have a huge negative effect), etc.

I am a proponent of using your intellect to have a vision of the next 10 years.

Afterall, Squirrels know that if they don't gather than nuts and bury them for the future, they will die by the time the Winter is in full swing.

If a simple Squirrel can calculate for the future, why can't we?

I know, I was just being a bit lazy.  :)  But, I didn't realize the huge difference it would make on the longer term. Anyway, I found an inflation calculator to see how those properties kept up with inflation. The inflation adjusted price of the 1964 $64k house would be worth $626k today and the 1988 $140k house would be $359k

So, 
1) $2.5m appreciated value vs $626k inflation adjusted value

2) $800k appreciated value vs $359k inflation adjusted value

And I do agree that we should do our best to determine areas in the path of progress, to set ourselves up for the best possible outcomes.

The short answer is NO, there is theoretically no limit to appreciation. But, it is relative and over the long run. Short term trends may temporarily reverse course, but generally, those desirable areas and homes will continue to appreciate, at least with the current laws and rules in place (i.e. ownership rights, tax benefits, etc). Some areas and/or houses may fall out of favor to the market, but the "value" is typically in the land the house is on.

And when you say "value" I'm assuming you mean "price." 2 different things. And you actually used both terms interchangeably. The "price" is how much something costs, the "value" is a relative measure to each individual, based on multiple factors, including intangibles. It sounds like what you are really asking is a general economics question. 

The relativity is partly from inflation. In general, if you and other people are making more money, than you are more willing to pay more for what you want. So, if you just turn 16, you may have to buy a used car, for $3k due to your limited income/money, but when you get a job promotion and raise, at 25yrs old, you may decide to buy the brand new car you have had your eye on, even though it is 10 times as much as your first car, because you now can afford to.

Same with real estate. As incomes rise, more people can afford to pay more (a higher "price") for a home they want, in an area they want to be in. This creates competition/demand for those desirable homes and therefore, contributes to their higher "price." And, generally, over the long term, incomes and prices will rise.

Here's some real historical personal examples of rising prices:
House I bought in 1988 for $140k, is worth around $800k today, at it's original 793sf, or could be worth $1.4m if it was doubles in size. Using simple math (not compounding), that is a 471% increase or 13% per year (not accounting for compounding)

Here's a better one:

Another local neighborhood: in 1964 houses were $64k ish, today conservatively around $2.5m
3,806% total appreciation over 59yrs, or 65% annually (without compounding)