All Forum Posts by: Brad S.

Quote from @Stephen Bruce:

Freddie Mac: "The appraiser may also need to consider whether the income approach, cost analysis, market surveys or other methods are appropriate for supporting adjustments. The appraiser must provide a sufficient explanation of the basis and rationale for all adjustments (or, if necessary, lack of adjustments) within the appraisal report or addenda." 

"The income approach is required for appraisals of 2- to 4-unit properties. The Seller may request the appraiser to develop and report the income approach when not required for the transaction. The appraiser must develop and report the result of any approach to value that is applicable and necessary for an appraisal, even if the Seller did not request it.

Appraisals that rely solely on the income approach for the opinion of market value are unacceptable."

Fannie Mae: "The income approach to value is required in the valuation of two-unit to four-unit properties . . . However, USPAP requires the appraiser to develop and report the result of any approach to value that is necessary for credible assignment results. If the appraiser believes the income approach is necessary for credible assignment results, then the income approach must be included. Appraisals that rely solely on the income approach as an indicator of market value are not acceptable."

To me, its seems like there is room for using an income based appraisal. What are your thoughts?

Also, Id love to hear what you have to say on the absence of reasonable recent comps!

Yes, but what is required may differ from what I, as an appraiser, find meaningful, credible, or reliable with regard to value. I can tell you from my 27 years of appraisal experience, in my market, the income approach was significantly useful only a handful of times, for a 2-4 unit property,  and mainly as support for the sales-comp approach.  But, that is relative to my markets and specific assignments. But, with lack of reasonable quad comps, the income approach may become more reliable and/or reasonable for the appraiser. 

One problem is the lack of reasonable rental data for similar units/properties. There are typically a lot more variations in unit characteristics with 2-4 units properties than with larger apartment houses, etc. Then this is reflected in the wide range of grm's. An example is a previous duplex assignment I had which has grm's ranging from $199-$283. assuming market rents of $1,000/mth for the Subject, that equates to a value range potential of $199k to $283k or 40%+

It's a lot more challenging accounting for grm differences than other property differences.

But, once again, this challenge of lack of comps may actually benefit you to the positive. Best way to do that is to explain and "prove" to the appraiser why your property is worth a lot by providing as much facts/data as possible. Give them the ammunition to support their higher conclusion. Your "opinion" doesn't help me defend MY professional appraiser opinion about the value of your property, but if you provide me data I'm not aware of, or haven't thought about, etc, maybe I can justify a different conclusion.

Here's a thread where I posted a more detailed answer to what to do if comps are lacking. I think my post is 3rd down.

https://www.biggerpockets.com/forums/48/topics/1168539-quest...

An appraiser should value a quad as a residential property, since that's what it is. As a matter of fact, many commercial appraisers will not even do a residential appraisal. An appraiser will not look at NOI or cap rates, and many residential appraisers may not know what do with those #'s anyway. but they will look at the GRM's (gross rent multipliers).

But, typically 4 units and under are not purchased for income alone and many times the GRM's of 2-4 unit properties vary significantly, based on many characteristics, and therefore, the income approach is not usually significantly meaningful.

In the absence of reasonable recent comps, there are multiple ways to approach the valuation. I have posted responses about that scenario previously. I can copy and paste one of those previous responses to that point, if you're interested. 

One way of approaching this is to ask experienced local realtors (maybe both residential and commercial) and see what their opinions are. Basically, you want to try and get in the head of any potential buyers and what they may be willing to pay and why. And yes, income would be a consideration, but with little or no reasonable comps, many appraisers may be stumped and take an easy way out, which may, unfortunately, not be the best or accurate. But, it is just those imperfect markets and deals that may have hidden value that others' have difficulty recognizing. That may work in your benefit if/when you decide to sell in the future. 

I personally, would never rely on an appraiser's opinion (other than mine of course), in assessing a deal, but unfortunately, they are an integral part of the financing and that should be taken into account. An experienced local investor or realtor will typically have a better finger on the pulse of a market and potential of a property, than an appraiser. We (appraisers) only reflect the market, based on available data.

Quote from @Robert Ellis:

 Then what you want to do is somehow assess a value, or demand, difference, for properties in your subject location (urban). So, you can compare the data in the suburban area to the urban area (your market area) and estimate a location difference. Typically that might point to a % difference, like properties in the urban area may sell for 5% more than those in the suburban area, etc. You most likely need to do this with sfr's, since you don't have enough multi-family data in both areas. I would also ask experienced busy local realtors in your market and see what their opinion is. And as I said in a previous post, you may have to go back multiple years to find new builds in the urban area and compare them to resales and see if you can estimate a value difference.

There is no easy way to do this in that complex situation and many appraisers, IMO, are not skilled or educated enough to do that type of deep-dive analysis, and/or do not get paid enough (in the current appraisal climate) in order to take the proper time and use the proper tools to do what's required. I, myself have had bad appraisals on some of my deals. And even with a data supported rebuttal, it didn't make a difference.

But, on the other hand, those imperfect situations can also create opportunity, since you are kinda setting the bar for new build units in that urban area.

Good Luck!

IMO  I think the most important considerations are your own personal goals. You did post some of them generally in one of your response posts ("to build a portfolio to buy and hold multi-family houses. I don't need cashflow now, but I do need them to break even."), but you may want to really "drill down" more on those goals and plans before making any moves. Once you start doing that, typically you are able to focus on specific markets or areas better. You quickly discount ones that don't fit those potential goals and do more research on those that might be good for your goals, etc. 

Kinda like shopping for a car: when you really think about what you want or need, you may decide good gas mileage, large enough for your family, good power, and other specific qualities or features. Then you can easily narrow down your choices and alter your considerations as needed.

One good way of doing that is to visualize your situation 5,10, 15+ years in the future and what do you want that investment property to accomplish for you. Do you want to have good cash flow, but not too concerned about the appreciation, or vice-versa, do you want a fair combination of both, do you want a property that is desirable and rents easily when vacated (or sells quicker), do you want to be able to sell it at a big profit in 10 years and buy a multi-family throwing off more cash flow or buy 3 other sfr's, etc. Of course we all want our investments to do ALL the above, but that is not realistic. 

Basically, its creating your road map so you can get closer to your goals by making better decisions today. My first couple of rentals mostly provided me an education, as opposed to any real financial gain, because I wanted to just "get in the game." I would've much rather have had more intention with my decisions then and I feel I would be much further today.

Then, when you have a clearer idea of where you want to be in the future, you can do specific research to find markets that may get you closer to that goal (growth markets, good cash flow market, etc). 

This process will also shape your decisions, like, since you don't need cash flow now, you may want to invest in a growth market with very good appreciation potential in the future. That will probably take more cash to get in now, but may provide more fruit later. I have had rentals in multiple different markets (growth/appreciation potential, cash flow, and a combo of both). All of them provide different benefits, but I personally would rather better appreciation markets or somewhere in between and not be overly concerned with my % returns (quality over quantity for me). I've had rentals that cash flowed well but made me no appreciation over 18 years, I have rentals which cash flow ok and appreciated pretty good (2.5x over 15 yrs), and then I've had rentals which cash flow significantly less, but appreciated great (4x over 15 yrs). I've also got lucky and had a rental in a good growth market with pretty good cash flow, which appreciated over 50% in 2 yrs in both rents and value.

Also, don't fixate on rates exclusively, they are all relative. They are only part of the affordability equation. And if you look at charts, rates do not exclusively dictate the direction of prices, but they can effect the demand.

.....And don't fixate on the last ~5 years and think those were typical, they're not, they were an anomaly based on many factors and not typical of market cycles or timing.

Quote from @Robert Ellis:

 Well, I would first start with breaking down the important characteristics in that market and trying to answer questions. Similar to what I posted previously. Specifically to your question: I am assuming you mean how would you value a new construction project, if you have no similar new constructions projects which have recently sold. In that case, again, you should question what are the important characteristics for that specific market. And you would want to try and determine how much the "new construction" characteristic might add to the demand. So, I would search for relatively newer built projects that recently sold, or recently renovated ones. I would go back in time, as far as possible, to find new or newish or renovated projects that had sold and compare them to similar projects that sold around that time. Example: if I find a newly built 4 unit that sold 5 years ago, I would find similar 4 units projects (but older) which sold around 5 years ago  and compare their sale prices to estimate any premium for age. That may tell you what "premium" buyers put on newer projects in the market and you can add that to more recent comps. I may also compare that new built sale to a recent sale today, by trending the sale price to today, by doing market trend research to see how different the current market is. Basically, you are trying to isolate the different variable to best estimate the market's effect to it. 

But, that is not always possible to do quantitatively and you may have to look at it more qualitatively. Quantitative is forming an opinion based on measurable data, while quantitative would be more subjective basing it on more general observation or opinions. So, I may interview multiple local realtors and ask their opinion and what they see their client's are looking for or are willing to pay more for and how much, etc. 

I think I said this previously, but a really skilled "local" investor knows their market better than the local agents. 

Quote from @Jonathan C.:

About 20 months ago, I bought a turnkey property in a C class neighborhood in St. Louis, MO. Despite it appraising for the purchase price, I likely overpaid. In September 2023, the renter stopped paying, leading to eviction in January 2024, resulting in a loss of five months' rent. Estimates to make the property rental-ready now stand at $8,000, meaning a total loss of about $13,000 in five months. I initially bought the house for $80,000 and could sell it post-repairs for $65,000 to $70,000, or "as is" for around $50,000. Given the uncertain neighborhood prospects, I'm torn between enduring potential long-term losses or cutting them now. Would experienced investors stick it out or minimize losses by selling? Any insights appreciated.
Current rent: $850. I owe about 60k on the mortgage.

Here's my brief 2 cents based on actual experience and #'s.

Bottomline to me is what are you goals and does this property meet or is likely to meet those goals within the time frame you desire?

If you are not confident the area will appreciate (value and/or rents) or grow in demand within your time frame, then you may want to think about a plan of how to best dispose of that liability. Because, in that case it is more likely a liability than an asset to you. Don't believe anyone who says any real estate is good to own and the 'ol "buy real estate and wait," don't "wait to buy real estate." Those are people that don't have anything at stake in your situation and they most likely don't have experience in that specific market area and those statements depend on your time frame and are market and property specific.

Now, here are 2 specific examples of properties that I owned that I would've been happy never owning. They contributed to additional stress, liabilities and spent energy and money at times throughout my ownership. And in the end didn't make me money and the loans I had on them actually prevented me from getting additional loans on other better deals.

Anyway, here are the specifics:

1) purchased 7/1997 @ $80k, 
$500 down payment, cashflow appx $150/mth as long as there were no major repairs or maintenance items, great % returns but very little $ returns.

Sold 5/2016 @$67k,
after about $7k rehab
was about $250/mth cash flow at time of sale
Oh, and it took many months to sell, therefore costing me additional holding costs with no cash flow

2)  purchased 9/1998 @ $71k,
Similar and same area as #1 - $500 down payment, cashflow appx $150/mth 

Sold 4/2016 @$72k,
after about $9k rehab
was about $250/mth cash flow at time of sale
and also took many months to sell

For fun, I just looked up their zillow as of today and 1 recently resold for $85k

Now, today, there are a lot more resources to easily research market areas, etc, so I now do more research to find markets with more demand and growth potential. 

I hope this doesn't reflect exactly on your situation, as your area and property may do much better over time. But, it is meant as a cautionary tale to keep in mind when evaluating your situation. You may decide to dump it and then an amazing deal may come up which may make you a lot more than you gave up. Good luck

@Antonio Bodley

Not sure why you would consider buying it, since you are just planning on wholesaling it. Just get an option on it, at a price that works for your plan. Then try and market it to a rehabber and if you don’t get any bites, your only out a small amount of option consideration money.

Quote from @James Wise:

Quote from @Arshiya Taami:

Im in the southern california area about to do my first fix and flip (mainly cosmetic fix up) and was wondering if there are any permits I am going to need when renovating the house. 

 In California you need a permit to pull a permit.

Jimmy my Boy, you are always exaggerating. 

In CA, you need to pay the entitlement fees, gas tax fees, neighbor nuisance fees, walking fees, gas guzzler fees, street crossing turtle fees, and others I can't think of at the moment FIRST, and THEN you can apply for the permit to pull the actual permit.

Quote from @Walid Ajmal:

In the recent few months, the market has dried up in Southern California. I, along with other investors, am thirsty for some good off-market deals. We are typically looking in Southern California but are open to looking at opportunities outside of the state if the numbers make sense. Msg me directly so that I can give you my email address. Thank you 

What are your general criteria?
obviously off-market, but what else?  price range, condition, location, discount %, etc.

Yes, for a few reasons.

1) local to you - you would most likely have an edge to start right where you are, since you may have better access to data and physically can go to the properties and/or meet investors in person, if need be, etc. 

2) since the #'s are typically larger here (SoCal) you have the potential to make larger $'s ! I have personally seen wholesalers market 6 figures without ever owning the property. Some have made more money wholesaling it to me (with little risk), than I had ultimately made flipping it retail (with high risk). My guess is that is more difficult to do in many other markets. 

3) There is a lot of money here looking for a home (figuratively speaking). 

Typically, the most important part of a deal is actually finding a "deal." Many investors, realtors, etc, often don't truly understand what a "deal" is.  And hint, hint - a deal is not typically an average- good condition or rehabbed house for 10% below market value, from an unmotivated owner. It's also not a great house with great location from an unmotivated owner. A great house or location does not necessarily make a deal on it's own.

owner 

...oh, and let me know when you do find a true "deal!"  

Good luck...