All Forum Posts by: Brad S.

Got your attention?

George Gammon is always fun, interesting, and very informative. 

But, don't worry, he didn't really mean 50% .....or did he!

Click below!

The Fed's New Plan To CRUSH Home Prices (50% Drop Possible)

Hey Eric,

I'm not following... How did you take out the compounding. I don't want to take out my "future worth" tables and all that crap. I assume you are using a compounding calculator online or something.

But, also, why take out the compounding, That's still part of the profit. And as Einstein was reported as saying, "Compound interest is the eighth Wonder of the World. He who understands it, earns it ...he who doesn't...pays it."

Oh, that just reminded me of my Grandpa's land he bought in 1957ish, outside of Vegas for $257, and the family sold it for 1 mill around 2005-06. 

 ....Good thing Grandpa liked to gamble!   

In the past I have told some people about a couple of really good deals I had bought and some people responded with the question, "How do you do that?" My answer always is, "I asked."

In other words, you decide what #'s work for you and then you ask for it. You are here to get YOUR needs met first, in a nice respectful way, and then you see if you can meet the buyers needs also. Unfortunately, that is not always possible, and you may have to move on to the next opportunity.

I look at it this way: Right now, that property is THEIR liability, so how much are YOU willing to pay to take on that liability, in the *hopes* of being able to turn it into an asset. Unless, of course, you want to run a charity.  

You are not insulting them, you are stating that you know where your "value" is. Also, don't get too caught up in "losing this deal." I like the phrase that Dolf De Roos says, "The deal of a lifetime comes around every week."  Do your best to keep an abundance mentality.

Good luck!

Very inspiring! 

With that outlook and motivation you will keep doing amazing at whatever you set your sails on!

Good luck and we are here to help!

Hey @Mario Fernandez

My first rentals were out of state, long before biggerpockets was born (1997). I no longer have them and honestly would've rather have not purchased 2 of them. The experience was ok and the education was priceless, but in the end those 2 were more of a liability and burden than benefit. And that was mainly due to the specific market where I bought them and the time I chose when to get out of them. I sold both of them after 19 years, when those markets were ok, but lost money on both of them. So, the old adage of "real estate always goes up," is dependent on your timing and the cycles. 

Anyway, I had bought multiple other oos rentals since then, and have no worries about doing oos. But, I would back up and first get clear on what your goals are. Where do you want to see yourself in 5, 10, 15 years from now, etc. And you do that without thinking of any potential limitations (money, etc). I have read many people say they want 10, 20, or more doors, etc, but that is not what they really want. They may want $10k net cashflow per month. Because, you can have 20 doors which throw off $100/mth each, which only gets you $2k/mth and that may get wiped away with one bad property experience, etc. 

Then, you can decide which part of this business you want to pursue. Maybe it's just acquiring rentals 1 at a time, with small, but reasonable cashflow, and stay at your job, and hope they appreciate over 20 years, or ?  There really are no limitations but the ones you put on yourself and the key to moving beyond them is education. You may decide you want to  find wholesale deals locally and sell them wholesale, to raise enough money to buy more oos rentals, or partner up with someone who has the capital but not the knowledge to do deals. There is a lot more to this, but the place to start IMO is getting clear on your goals. Then you can narrow down your focus, maybe to specific areas, property type, etc, then you'd be in a better position to accept the help from some of these people who replied to this post.

You are in a good position, with a little cash, a job which covers your bills, high motivation, and access to the endless knowledge and resources to help you get where you set sail to. 

@Ron Brady

@Ron Brady

I do very much appreciate your open consideration to my potentially differing view on this situation. I highly respect you for being open to alternative viewpoints. :) I think it is important to be open to discussion, even with differing views.

If you are inclined, you can read some of my response to Steve K, where I add a little insight into part of the appraisal process. But, of course, it is not possible to fully eliminate bias from the equation. Just like you can't remove the observer from what is observed. But, I think it is in all our best interest, to consider alternative viewpoints, based on others' experience. After all, my sincere belief is we all generally want the same things.

I want to add a couple of points to this discussion. I am aware of the NFHA report on bias within appraisals. I have briefly reviewed it and found some interesting information I wasn't previously aware of. I found the historical references to bias in real estate based on "social and racial classes" disturbing and enlightening. I was also unaware that my own group is listed as having an unfavorable influence on a neighborhood, as stated in a list, within an appraisal manual, from 1946. But, I also noticed that most of those practices and ideas, appeared to be from around 75-90 years ago, and there was a court settlement in 1976, which included an appraiser group, agreeing to do more to combat bias in appraisals.

But, I take issue with the report then specifically briefly mentioning only one side of 5 anecdotal situations of appraisal discrepancy and stating they are examples of continuing "individual and systemic" bias. If these are truly reflection of racial bias, then they need to be put to more objective scrutiny. Only having 2 competing datapoints (2 differing appraisals) does not reflect anything specifically, except the pre-existing bias of the people interpreting them. Now, if there are multiple reviews of those reports and many more reports of those same properties with the same circumstances, etc, then we may have a glimpse of a trend or abcense of one.

In my 26 year professional experience, not once did I hear any instructor, colleague or anyone else in and around the appraisal profession, mention racial or social classes as a factor in an appraisal analysis. We are taught to look at "the data" and have the data lead us to our conclusions. We are very specifically chastised for not having a verifiable, reasonable basis for our opinions. Of course, we all have our own personal views, but we (appraisers) are supposed to form those views based on the evidence, not the other way around. An example would be: Someone saying that a house with a pool is worth more than one without. But, there are neighborhoods were that isn't true. It may be because the area has a lot of young families and the pools are seen as a liability to their infants, or maybe people don't want the additional upkeep of the pool, or they don't want it taking up yard space, etc. The data may reflect that houses with pools are actually selling for less. Same with 3 or 4 bedroom houses. Buyers may generally prefer 3 bedroom houses in an area, since they want larger bedrooms, or they may want 4 bedroom houses, since they want an office, etc. Point is, we look at the data to tell us, not the other way around.

I also have an issue that they are using census tracts as their basis for the study. Their are some inherent assumptions with that. One assumption is that somehow the census tract boundaries are succinctly representative of the specific racial or social class. Census tracts were first conceptualized in 1906 with most tracts defined by 1940. I am not aware of any changes since that time. So, basically, they are using a concept that was developed between 80-110 years ago, during periods of bias, as a framework to study the potential existence of that same bias. Does anyone see a potential problem with that! Also, I am unaware of any appraisers that use census tracts for anything in an appraisal, except for stating them, since that is required by the lender.

Another issue I have is that it seems pretty biased to assume that the bias in inherent within the appraisal itself, as opposed to the appraisal reflecting other potential issues. Appraisals are supposed to be reflective, but it seems like the only magnifying glass is on the appraisers and not on any underlying cause of potential lower values in specific areas. Meaning, maybe the lower appraisals are actually reflecting an actual lower appeal and/or affordability of houses in those neighborhoods. But, the actual reasons for those issues are not likely to be directly addressed if they are outshadowed by diversions.

By the way, higher appraisals are likely to be detrimental to many current or prospective homeowners, as well. If a homeowner is in a state that doesn't have property tax assessment limits, homeowners may find their property taxes increasing substantially as their home valuation goes up. Also, it may put additional affordability pressure on homebuyers, as those values rise. Yes, it will also be beneficial to homesellers and refinancing, but my point here is, if there are certain policies pushed which unnaturally force higher valuations, as opposed to allowing market forces to determine values, it may cause unneeded/unwarranted harm.

Ok, I may be about done with this thread for now. LOL

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@Steve K.

Thank You for honestly considering my thoughts. I have a lot of respect for you openly considering my points and opinions on this situation. There may be other appraisal situations where lines were definitely crossed, but, in this specific situation and a couple of others I have looked at, it is not as clear. I think it would've been more productive for the authorities to "properly" analyze and research this instance, to objectively identify any potential issues, rather than promote a narrative, which may not reflect the actual nature of the situation. This is especially frustating to me and some of my colleagues, whom vehemently detest the flagrant bias this narrative suggests. A byproduct of this is focussing energy and resources on a potentially benign situation, while being distracted from focusing on specific instances, which may have caused direct harm. This also seems to cause more of a divide between well-meaning people, even when they are on the same "side" at their core.

Here is a little insight into the appraisal process, in regard to your last sentence. We (appraisers) are supposed to research/gather, and analyze all reasonably available data from the market and allow "the data" to dictate the market reaction to specific characteristics, including locational differences, specific property characteristics, etc. So, you are right, we should'nt be allowing appraisers to deem certain areas "less disearable," and as a matter of fact we are not supposed to even use the term "desireable."

One example of how the data analysis should be done is: There are typically major neighborhood boundaries which distinguish between 2 areas/neighborhoods. This may be a major freeway/hwy, street, city boundary, zip codes, natural landmarks, or even between 2 development areas or subdivisions. So, I may pull market data and notice a potential price difference in sales between properties in a specific area. Then upon further analysis, I may see that prices of properties on one side of a boundary appear to be more than the other side. Then I would look further, maybe do a sale price/square foot analysis, and I may find a significant (or "distinct") difference in sp/sf of properties from one side of a boundary, as compared to the other. This would suggest to me that there is a different market appeal between those 2 areas. Based on my analysis, I may determine the data suggest a reasonable difference of 10% between those 2 areas. If my Subject property in the higher appeal neighborhood, then I would do a 10% upward location adjustment to any comparables used from the lower appeal area. Basically, I am looking for the data to "tell me" what the market wants, not the other way around. But, generally, this may be what was meant by areas with "distinct marketability."

Here are some very specific real world examples: I have done a ton of work in Beverly Hills. There are some very distinct market areas in Beverly Hills, especially since the TV show 90210 was on many years ago. Some people very specifically wanted to live in the 90210 zip code, and they would pay more for that zip, compared to other Bev Hills zip codes. And within the 90210 zip code are other very distinct market areas. There is a portion of 90210 that is within the city of Los Angeles, not even in the city of Beverly Hills, even though they have the same zip code. Thost are in a different distinct market area with a different market appeal. I dont want to get too much "in the weeds," but I think you understand. Basically, I should look for the data to reflect the market, not the other way around. So, yes, we are definitely in agreement on that. :)