All Forum Posts by: Brad S.

Quote from @Amery Castaneda:

Hello,

Starting out as an investor and still learning. What are any of your guys recommendations in buying property out of state as a long term rental? I live in California and as all of you are aware it's difficult to start as in investor here so I decided to start investing out of state. I have my funds for a down payment just lack the networking. 

I'm also looking for a real estate agent with experience in investing that I can get in contact with to provide me with expertise knowledge and everything I need to know about the state of Texas along with a property management company for the state of Texas. Thank you to whomever responds it's appreciated. 

Hi Amery,
I have had rentals in TX since 2006 and have very good experience with some agents in 3 markets. I just sold a 6-plex I had in San Antonio and actually brought that money into a development deal back home, to CA. But, I still have Austin and DFW rentals. I have a great realtor/prop mgr in the DFW area and another great Commercial Agent in San Antonio, and a good contact for Austin also. My experience has been that San Antonio is best for cashflow, not sure about appreciation, Austin was best for appreciation, although prices have skyrocketed and appear to have been slowing at the moment and DFW was somewhere in the middle with modest cashflow and appreciation, but again has slowed somewhat in the past 9 months or so.

What are your general plans? Are you looking to maximize cashflow or put yourself in the path of potential appreciation or somewhere in the middle? Obviously, we all want all the above, but that is not typically realistic. And are you open to any other areas? Feel free to contact me directly if you like.

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I was sincerely asking, since I have followed this case and some others, as I and my appraiser colleagues have a vested interest. Believe me when I say appraisers probably despise this kind of practice more than most anyone. It doesn't help the publics' perception of us and casts a shadow on our profession and the thousand's of hours, experience and training, it took to obtain our license and/or certification. So, if there is definitive information out there stating what you state, then I'd be happy to present to the licensing body for review. So, again please point me to the direction of this info you "clearly" have seen or read, if it exists. But, if it doesn't exist, you would do yourself and everyone a favor by not throwing around false accusations and defamations based on incomplete information and ignorance (not being pejorative, but meaning lacking knowledge, unaware or uninformed). I respect your opinion, even if it is based on incomplete understanding, but you cross the line when certain facts are altered/fabricated. But respect does dwindle with unwillingness to understand certain facts of a situation and procedures typically involved.

As a professional certified appraiser for decades (performing 1,000's of appraisals and reviews) and a licensed agent/broker for as long, and previously living and frequently visiting that area, and specifically researching the local market data in that area, I have a pretty informed view of complexities with an assignment there.

This does not appear to be a very clear cut appraisal assignment. It is in a sub-market of the neighborhood, with very little data available, and adjacent to other market areas, which may have differing market appeal. This along with the Subject property being a "pole house," which may have a very specific appeal (adverse or otherwise). The proper way of handling this, is to do a market analysis for differences in the market areas, as compared to the Subject, and also do this for any potential market differences (or "distinct marketability") with regard to the Subject's design (pole house). My guess is neither appraiser did a thorough job of analysis, and maybe the valuation should be more in the middle of both opinions.

Although historically, Marin City was majority a black community, it's current make-up appears to be more diverse (per city-data.com: white-32.1%, Hispanic-25%, Black-21.6%, 2 or more races-14.1%, asian-7%). And the surrounding market areas appear to be mostly white. And since there was very limited data in Marin City itself, and the neighborhood profile appears to be diverse, I am not sure how either appraiser would "[draw] a line between areas [known] to be black."

And maybe you aren't aware of how much it costs to defend a lawsuit and that it is typically less expensive to settle. Most E & O insurance policies don't cover this situation, therefore, it may've made more sense to them to settle. So, you're right, that isn't suprising.

But, until both appraisals are competently reviewed and more appraisals are conducted under similar scenarios, none of these accusations are evident.

But, thank you for caring about this situation as much as many of us do, we are all on the same side here, wanting to help rid the world of these injustices, but we should be careful of where we aim our intent, as it may be misguided and cause real harm.

Quote from @Ron Brady:

As a reminder, the Millers a) made the original error, b) admitted to it by settling the lawsuit and c) admitted that race was involved by agreeing to watch the documentary.

Some in this thread have chosen to criticize me more than the Millers. Given what we know the Millers did wrong and admitted to, making me the object of one's ire says far more about the poster than me.

And I will continue to share real estate topics of interest to me here on the BP forums, always welcoming debate but not personal barbs.  If you find topics around bias are not for you, feel free to use your scroll bar.

Ron,

First let me say, that I believe most, if not all of us, don't condone any of this bias, in any way. But, I do have issue with your simplistic summation of this specific case.

a) Not sure what "error" you are referring to or if even an error was made, but it shows bias for assuming the higher value is correct and the lower one is in error (this is not pointed at you).

b) I don't see any admission as part of the settlement. So, therefore, quite literally, nothing was admitted to. You can infer anything you want, but that doesn't change the facts or absense of them. It is often less expensive and less arduous to settle than continue to court. Also, most appraiser E&O insurance don't cover this situation and if they do, it may've been their (insurance co) choice to settle.

There is a current case back East (I cannot remember where at the moment), where the appraiser is countersuing for defamation, after a similar bias claim. So, we'll see how that one comes out.

c) Again no admission of this either.

Most of us are on the same side of the bias issue, but I personally, have issue with how this specific case has been characterized and promoted with little regard for the actual unbiased facts. If you are interested in some facts you are welcome to read my response to Steve below.

Quote from @Steve K.:

The appraiser even admitted in an interview early on in the case that she had made an effort to only pull comps from other black neighborhoods for the first appraisal. 

Please let us know where we can read about or see the interview you are referring to. Thank You

A few things

I agree with @Eric Greenberg, I think the vacancy should be higher to be safe, and the property mgt should be in there at around 8%. If you are accounting for a 4% vacancy, that equals about 25 months of full occupancy. So, you would hope the tenants don't change often. Plus a higher vacancy amt can help offset any overages in maintenance and capx, since it was built in 1957 and may have some maintenance and capx surprises waiting.

I don't think most people include a mgt expense if they are managing themselves, but then they don't look at it as a business. You wouldn't (or shouldn't) buy a business without taking into account operating expenses, and mgt is an operating expense. And if you manage yourself, you just pay yourself that income, but that is separate from the income the property is producing.

Insurance looks reasonable. Did you get an actual quote from an Insurance Agent? You should and I have an excellent farmers agent if you need a referral, or if you can (if you or a family member was/is in the military) check with USAA. I have found them to have great rates, including rentals. 

Property Taxes - Your estimate is low, @ around .8% of your purchase price. CA taxes are a flat 1% of assessed value + local voter indebtedness, abatements, etc, usually in the 1.12-1.2% range. I looked at the taxes on the Subject property for the past 2 years and it shows around 1.2% is reasonable (see jpg attached). That will be based on the market value when you purchase, which will most likely be your purchase price, therefore $391/mth (see attached jpg).

So, using your other expenses, that works out to around 5.29% coc return (without adjusting some of your expenses). Generally, that doesn't sound terrible for an unleveraged investment, but it isn't great from a pure cashflow perspective either. But, when you look at it from your value-add potential (adding a unit/adu), that may make it more appealing. My guess is you would only be allowed to add an ADU, since R-10 zoning allows for a max of 10 units per acre, or 1 unit per 4,356sf. But, maybe you could get a variance and put a unit and an adu, which may significantly help the cashflow and return potential.

Oh, also keep in mind the values in CA may be near a cycle high, so you may be better off not to expect too much upward potential, at least in the near term. But, with the value-add potential that may not matter as much. Good luck and let us know how it goes!

Quote from @Ron Brady:

https://nypost.com/2023/03/08/...

Black family sued appraiser in Marin, CA matter. From the article, "The case has now been settled out of court, with appraiser agreeing to pay an undisclosed sum of money to the couple. The settlement also includes an unusual twist: The appraiser was also required to watch“Our America: Lowballed,” a documentary about their “white-washed” saga."

Glad to see accountability here. Progress.

I can't speak to the other specific instances, but I know some about this one. IMO this was more a case of competence than anything. One appraiser used similar homes (pole built homes), from a more similar neighborhood and took into account the market appeal for the Subject's style and location, and the other Appraiser used different style homes (not pole built), in a different neighborhood with more expensive homes, and a higher market appeal, and across a major boundary, closer to the Bay. I looked at the sales data around the Subject property, and there were very few reasonable comps in the immediate neighborhood, at the time. But looking at historical prices, suggested a market difference between the Subject neighborhood and the more expensive one. Bottomline, 2 or 3 differing opinions do not make an issue. If there were multiple reviews on the reports and more professional opinions (multiple local knowledgeable Realtors and more appraisals, etc), than maybe we can discern what happened. 

Hey @Lionel Quiambao

So, off the bat, it sounds like a potential great opportunity for you. As long as everything checks out. And you'd have lots of options. I have a few thoughts and info.

First, do not list it in the mls. There is no benefit and it may actually be negative later on. I started my Appraisal career as a deputy Tax Assessor for LA County, so I know a little about this, even though that was many years ago. I am still a practicing Appraiser as well as a Realtor/Broker for many years. Property taxes in CA are very simple, they are a flat 1% of the Assessed Value. And the Assessed Value is based on the Market Value when the property transfers (sells).  Technically, it is not based on the Purchase Price (PP) of the property, although, most of the time the PP is the same or close to the market value, and therefore, ends up being the assigned Assessed Value.  That's probably why many people assume the Assessed Value is based on PP. Otherwise, you could get a $100 Assessed Value on a house, if you got an extreme discount.

Now, your actual tax bill includes additional voter indebtedness, bonds and other assessments, which are technically not property taxes, but are included on the tax bill, in addition to the 1% property tax rate. This is why taxes are more than 1% of the assessed value. Typically, I see the total rate to be around 1.12-1.15%, although, when I was a mortgage broker, we would use 1.25% for qualifying.

Ok, that may've been more than you wanted to know, but it is good education for the start of your journey. Remember, this is only for CA though, every state's property taxes are different. Now, no matter if you have it listed in the mls or not, it will get flagged by the Assessor as being significantly below market value, and it will be separately assessed closer to market value, based on comparables. Something you can do to help is to make sure you describe the unit in poor condition, etc, on the Preliminary Change of Ownership Form, which you be required to fill out when you purchase it. That way, when the Assessor looks at the transaction, they may understand that your unit is not worth $365k since it isn't remodeled, and hopefully, they will assess it significantly lower. And if you disagree with their assessment, then you can file an appeal. But, if you do, don't go in there saying it should be assessed at the purchase price, instead try and explain how the poor condition, etc, supported the lower purchase price. But, this transaction is what's called a non-arms length transaction, since you have an existing relationship with the seller (i.e. family friend).  What that means is that the transaction had some atypical motivation, which contributed to the lower sale price.

Ok, enough of that. Anyway, the potential issue with listing it in the mls is, if you go to sell it shortly, even a year or so after, the Appraiser for the Buyer's lender has to explain significant rise in sale price, as compared to the $150k when you purchased it. And it is easier to explain that it sold under market value due to it being sold off-market in a non-arms length transaction. And since listing it in the mls really won't help the assessment issue, you really don't have anything to gain listing it. 

Re: Insurance - typically the HOA has insurance on the building and the unit up until the interior. No additional insurance is needed, although, you are always able to get additional insurance if you want. But, it should be a lot less than your estimate of $1,277/yr. But, you would check with the HOA to see what their insurance covers, when it comes to your individual unit. I have never had an additional policy for my rental condo, except when I had it as an str.

Re: Renting it - I found FHA loans down just under 6% when I searched, so I will use 6%, with 3.5% down. I get mtg pmt of $934 + HOA $410 + property taxes $312 (Estimated from $325k @ 1.15% rounded) and tenant pays utilities and water is usually paid for by the HOA and sometimes gas and/or electricity, etc.. So your costs would be $1,655 before any other costs (maintenance, etc). So, you could actually rent the whole unit out and possibly not be negative until you sell it ( 1 year or 2), or you could live there and rent out the additional rooms and cover your costs, except for potential maintenance issues, etc. Basically you have options! I personally would not buy any longterm investment in the current CA market, unless it was significantly discounted or had some other value added potential. And this deal definitely checks the discounted box! But, it really comes down to what your goals are and what your situation is, etc. It's hard to speculate what to do with this deal, without knowing more. Feel free to reach out if you want to discuss it more specifically.

Quote from @Bob Stevens:

Quote from @Brad S.:

 Not sure where you are looking but you get 10% or better NET caps based on cash purchases. There is a reason why 100s an 100s of investors have been buying in OH for years and years. Heck I just had a closing yesterday ( 5 more next week ) all in 110k, net rent 13- 14k,,, 

All the best 

I'm not saying it isn't a good area for investment, but with so many investors going to an area, I get concerned about the tenant to owner ratio in that area. 

 Who cares. As long as you are getting 10% or better net and purchasing below the value, who cares. I  just flipped a 3/2 fully rent rehabbed, for 105k, rent is 1400, taxes 2k, value is about 125k, does the owner care about tenant to owner ratio :) 

All the best 

Well, I would care if there is a high tenant to owner ratio and/or trend in a neighborhood, since that might result in more competition (i.e. supply) in the future, for both properties for rent and sale, which may result in downward pressure on both, depending on market conditions. I have personally seen this in certain markets. So, if you are flipping at a specific point in time, then it isn't as important, but over time, it may be.

Again, I'm not saying your areas are not good for investments, but I am saying that tenant/owner ratio and trend, is part of the analysis, at least for me. 

Glad you did well on that flip! :)

 Not sure where you are looking but you get 10% or better NET caps based on cash purchases. There is a reason why 100s an 100s of investors have been buying in OH for years and years. Heck I just had a closing yesterday ( 5 more next week ) all in 110k, net rent 13- 14k,,, 

All the best 

I'm not saying it isn't a good area for investment, but with so many investors going to an area, I get concerned about the tenant to owner ratio in that area. 

I personally would be very wary of putting that money to work in CA at the moment, unless you have a specific plan of adding value or getting a significant discounted deal. CA has historically been a momentum state, where prices move moderately, or more, depending on market factors. And at the moment, CA affordability is at historically low rates, which typically translates to the market softening until things trend the other direction. Affordability is a fxn of income, interest rates, & prices. Interest rates have gone up significantly, income does not appear to be rising (you'd have to find the #'s to see what the trend is), and prices have definitely increased dramatically the past few years. So, if income falls, stays stable or even rises minimally/moderately, the higher interest rate trend will put downward pressure on prices. And this might translate into some deal opportunities coming up. I do like CA's appreciation momentum, when we are on that side of the slope, but I don't think we are there at the moment. I also don't like the direction of restricting landlord rights that CA has gone recently.

You are in a good position, being young with good income. I would be more concerned with growth than cashflow, in your position. Also, I have read many posts of people stating just buy at any time and real estate will go up (i.e. Don't wait to buy real estate, buy real estate and wait). And that does seem to be true, if you have an endless time horizon within your plans. But, I for one have lost money in real estate over long hold times, from buying at the wrong time and not being able to hold them long enough to benefit from the eventual rise. I was also restricted in my borrowing ability when financing guidelines changed, leaving me over the limit of mortgages I could conventionally get. Anyway, there's a lot more to all of that, but, bottomline is i'd rather go on with the direction of an escalator, rather than attempting to go UP on the "down" escalator (against it's normal direction). It's better to swim with the  direction of the tide than against it. You get the point.

I would look at growth markets, where population is growing, businesses are moving, and where the powers that be are welcoming the growth, etc. I think these states may fit the bill - TX, FL, TN. Then I would drill-down to specific markets within those states, or other states you find in your research. 

Wealth is built quicker and easier with appreciation. If you set yourself up right, you may be able to eventually reposition your assets to produce more than your $5k/mth goal. I don't think 3-4 years is realistic, but maybe the 5-10 year timeframe depending on the growth areas and amount of money you are able to deploy.  

Also, I'm not sure what market in CA you are in where the median homes are 300k-400k.