All Forum Posts by: Brad S.

I assume the construction company you run, is residential, or at least that you are able to do residential. Therefore, I would look for local buildable lots or sfr's on lots where you can add ADU's, etc. You can use SB9 to build 3 units on an sfr lot. And with your background and residential resources you should be able to do that with reasonable building costs and be able to develop good cashflow, due to the relatively high rents in CA.

 Some of the best deals are when we recognize potential where others do not.

The loan is going to based on the appraisal. So, you should just hope the appraiser is able to do a good job on the appraisal. Best thing to do is follow the things I said in the previous reply, and present the facts to the appraiser, and hope they do a good job. Don't try and "influence" them, you are just presenting the facts. And No, you don't have the ability to pursuade the lender.

Also, you need to make sure you get a good enough deal on the property to make it worth it for you. remember, that is the goal. And you can use any of the info you find to help with the negotiation also. 

Here is my answer from a similar post a while ago. This is how an appraiser (Me) would/should approach it:

There are multiple techniques to approach this situation, which may help in evaluating a potential deal.
* I would go back in time (sometimes years) to find any quadraplex sales, apply adjustments for any differences (size, condition, quality, etc), and then determine and apply any appropriate market trend adjustments (run a market trend analysis to see if there was an appreciating/depreciating values in the area of the comp/s, using linear regression or sale price/sf, etc). Obviously, this is somewhat technical and ways I need to approach it as an appraiser, but you could find a general source for market trends somewhere and/or apply an educated guess. Example: A quadraplex sold for $100k 2 years ago in your subject area and you find some general sources which state the local market has increased 15% in the past 2 years. Then you simply apply a 15% market trend adjustment to that sale, estimating it's current value around $115k.

* I would also look far and wide to adjacent neighborhoods to find any recent quad sales and then assess and apply appropriate location adjustments. Example: you might find a quad sale in an adjacent neighborhood which you determine sells for approximately 10% premium (higher appeal nhbd) than the Subject neighborhood, so you would assume a $100k quadraplex sale there would be worth about $90k in the Subject neighborhood.

* I would look for 3-4 unit sales in the Subject neighborhood and try to determine an adjustment per unit. Example: I might estimate a quadraplex sells for $50k more than a triplex, and therefore, generally assess a $50k value for that 4th unit. Then if I find a triplex which sold for $150k, my quadraplex may be around $200k. This technique is not usually too accurate, in my experience, but can sometimes give you an idea, in areas lacking recent data.

* You can also use the income approach, although, it is not very reliable in 2-4 unit properties. But, you could determine a general GRM (gross rent multiplier- sale price/monthly gross rents) for the neighborhood (preferable similar type properties-duplexes vs duplexes, etc) and apply that to each unit's rents or potential rents. Example: estimated GRM of 100 x estimated monthly rents of $2,000 for both units, gives you a $200k value. This technique is also not usually too accurate, since grm's can fluctuate based on multiple factors. You can also apply this per unit. Example: You apply the grm of 100 to a $1,000/mth rent for a 2 bed unit, to estimate that unit has a value of $100k. Then if you find a recent triplex sale with a 2 bed 3rd unit (one less 2 bed unit than the Subject), you can add $100k, to give you an idea of your quadraplex value.

* Also speak with local agents and ask their opinion of what 2-4 unit buyers are looking for and may put value on, and how much they think a quad similar to your subject would be worth, etc.

Yes, I know, it is not straight forward at all and can become more of an art. But, this type of situation may create more opportunity for an investor, since it is not as cookie cutter as many investors would like and they may not be able to recognize the nuances or opportunity with some deals.

Appraiser, Broker, Landlord, Flipper here.....

I have tried to steer away from pools in my flips and rentals. I don't want the additional expense, responsibility, and liability. That said, I am finishing up a flip that had a pool and I was considering demo'g it in rather than rehabbing it. But, I looked at the sale comps, and the properties in the area, and realized I needed to keep it to maximize the value and appeal. 

I would both pull data on properties in the neighborhood and see if they sell or rent with pools or without (and try and see if you notice a value difference), look at satellite maps (google satellite view, etc) of the yards around the neighborhood, to see if there are generally pools in the area and also speak with local agents, who know what buyers and/or renters are looking for in the area and ask their opinion. It's typically a lot less expensive to repair a pool then to put a new one in, and if you already have it there, it may be worth it. I had to get multiple quotes before deciding on someone to help redo our pool. Some of the quotes seemed outrageous.

Re: scenarios

1) 400sf is most likely a studio (but I suppose you might be able to put a bedroom or maybe a flex type of space with murphy bed and movable wall) and my quick mls search of rentals under 500sf in Covina, the past 12 months, shows 6 between $1,500-$1,950, there is even a 350sf studio that rented for $1,600 in June and a 400sf newly renovated studio renting for $1,750. Days on market are between 6-63 DOM

3 bedroom/1.5+ bath houses are renting between $2,550-$3,400, with the higher ones having been rehabbed.

2) I am assuming you are talking about using SB9 to have 2 separate dwellings on the lot plus an ADU?

You may be able to get around $2,750-$2,850 for a 800sf 2/2 house and then around $1,600-$1,750 for the studio ADU
But, I like using your conservative #'s and then you can have "bonuses" if you get higher rents.

I am assuming this is strictly a rental play and not a house hack or flip?

My vote would be to have the 2 dwellings (SB9) on the property and the studio ADU. It would be great if you can have them detached and keep the pool also (assuming a reasonable cost to repair, you can probably can get more rent, especially with our recent weather). Some of it depends on the house orientation and lot size.

@Alberto C.

First thing - An appraisal done for a loan will not affect the tax assessed value. The assessor will never see it first of all and it is done for financing purposes, not tax assessment purposes. 

Second - the appraiser is "influenced" by market data, not by Owner bias. Give them all the info and data you think is important for them to consider in their analysis. 

for the record - I am a longtime Certified RE Appraiser and ex-Deputy Tax Assessor (not in FL)

OK, CA appraiser here, so I cannot speak to specific FL market nuances, but I have been doing it for decades and have extensive general experience. 

Anyway, the bottom line is the market (sales data) tells you what amenities they value. My assumption (WAG-wild *** guess) is that the 1st appraiser thought the market (Buyers) put a value on a Florida room with AC, more than one without. So, first of all, did he give any value to the Florida room? What he could've done, is is give it a value, "as-if" it had AC and then do a "cost-to-cure" adjustment to the comps, to account for adding AC to the room. So, that would basically add the Florida room as an amenity, on the appraisal (adding between 10-15k to the value of the house - per your appraiser), and on a different line, they might subtract a $2k (WAG) cost-to-cure, to account for adding AC to that room. Or they would simply just add $2k less for the Florida room amenity, as compared to the comps without a similar amenity. The idea being, how much value would a typical buyer put on the Florida room the way it is and/or would they maybe just value it as if they could just add the AC themselves. It seems like having the Florida room there should add a significant value, even without AC, but again, I am not a FL market expert. Except I do own a rental in Cape Coral and I do know that a screened-in patio does add to it's appeal, so, I'd think a full Florida room would add more.

Now, the Lender may've also not wanted a cost-to-cure on there, but the appraiser should've still accounted for any added value they thought should be there. I am not sure what "guidelines" they are talking about, except maybe they are talking about having heating and ventilation in living area. But, living area would be defined by the local building codes, not by the Appraiser. But, that doesn't mean that non-living area wouldn't have value, but it would be accounted for differently than living area. I assume they are referring to the recently adopted measuring standards (ANSI), but again, that doesn't dictate what habitable or finished area is. Example, just because a garage is finished with insulation, drywall, flooring, hvac, and high-end finishes, does not change the fact that it is legally a garage (by building standards). But, it may add a significant value to the house, depending on the market.

Anyway, I think I got to far into "the weeds," but hopefully that made some sense.

What you're missing is that it is up to the Lender. The Lender is the client, since they are procuring the appraisals to use to decide on the loan risk. I mostly do residential appraisals and in residential, the Borrower is unable to directly order the appraisal for a loan situation. I don't think commercial falls under the same laws, but the Lender would still need to accept a Borrower ordered report, and my guess is most lenders will not be ok with that. Regarding expiration: Again that is a question to ask the Lender. There is no "expiration date" on an appraisal, but most lenders require the appraisal to be within 180 days, some may except it a little longer. So, if you have identified a bank or banks, ask them.

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First, I am sorry for your loss.  :(
It's nice your father was smart to build a real estate portfolio.

I am assuming you are talking about property taxes, since you mentioned Prop 19. This was a very bad deal for inherited properties. They purposely left out the negative parts of the bill when they promoted it. I just found a Q&A on the State Board of Equalization site which addresses this. My understanding is, you can only transfer the tax base value (and not get reassessed) for one family home and not on multiple homes. And one of the children (You or your brothers) must move into the house, making it their family home, in order to get that exclusion. And that exclusion only lasts for as long as that house is occupied as their family home. In other words, the house your father lived in can be occupied (within 1 year) by you or your brothers, and turned into their family home (taking the homeowner's exemption) and they can transfer the base tax value of that house to whomever occupies the house. But, if they move out at any point in the future, the house will get reassessed. And it appears you can't get away from this even if the property is in an LLC. And every other house you inherit will unfortunately, be reassessed at the time of transfer.

Once again, this prop was a terrible deal in many aspects, but shrouded in a few good ideas.
See these Q&A's  -  https://www.boe.ca.gov/proptax...

As a side note, you will need appraisals on the properties to establish the values at the time of death (speak to your CPA about that). It is always a good idea to do that as soon as possible, since it is easier and typically less expensive to do current appraisals than retrospective ones, where there may not be interior access to the properties. As a shameless plug, I am an appraiser does those and can assist with that or help refer you to someone, if you like.

You should offer what ever $ you think will make sense for YOU. What the bank, or any Seller, is asking (or needs), is secondary and should only matter in how to structure the deal or present an offer. Remember, it is currently THEIR problem (responsibility, etc), when you buy it is becomes YOUR problem. So, how much do YOU want to pay to take on THEIR problem (risk, work, potential gain, etc), as YOUR own!

Everything is realistic if it works for your goals, but some sellers are unrealistic, until some time as passed. In the past, I have told people about a few good deals I have gotten, and some ask, "How did you get it, or How did you get them to agree to that," and my answer is, "I asked."

But, if you want to feel more confident asking/offering a reasonable price (reasonable to you) for a potential deal, feel free to overpay for the deal, take on the risk, and eventually sell at a loss, and realize that YOUR goals are more important. My guess is you will feel more empowered to ask for what you want first, and consider what they want second, on future deals.

Most successful RE investors I know, have lost on at least 1 deal, but have received priceless lessons, as a result.

.....also, please don't rely solely on a websites value estimate, unless you want a priceless lesson.

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If you want to feel better about your FL property taxes, buy a rental in TX. Then your FL taxes may start to feel pretty low.

.................your welcome  :P