All Forum Posts by: Brad S.

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I have not invested in Cleveland, but I'm going to throw in my unsolicited 2 cents anyway.

Affordable is always relative. If an area is considered "the last affordable city" after the big run up in prices we recently had, I'd be concerned. Basic supply and demand would dictate either supply rising greater than demand or a significant lower demand, or a more-likely somewhere in-between. Either way, it would be concerning to me, as an investor. It would cause me to do some deep diving into specific stats to try and reveal the general story. Like trends in population, business, income, housing supply, etc.

As always it comes down to an investor’s specific goals. Are they looking for cash flow exclusively, moderate to high appreciation potential, or both, etc.

Typically, with more “affordable” markets, you get better relative cash flow but also more intensive management concerns (vacancy, collection, maintenance, turnover, etc) and less appreciation. And to get the #’s most people want, would require more doors (higher quantity), and therefore more time/energy intensive mgt issues. And that is moving further away from “passive.” I, personally, would rather have better quality than quantity, with reasonable nominal returns. But, the real challenge and skill, is in recognizing future opportunity today, or creating it with value-add opportunities.

I, personally, have owned “affordable” rentals in other areas, which appeared to cash flow relatively well, only to sell them almost 2 decades later for a loss or about even. And generally, they took longer to rent, longer to sell, cost relatively similar (maybe moderately less) to repair and rehab as other less affordable areas, and had more turnover than desired.

I also have a good friend/investor who owned over 100 sfr doors in the Detroit area that they were acquiring amazingly cheap, then rehabbing them. He was unpleasantly surprised with the management/collection/vacancy/repairs challenges there were on them, which drastically cut down his returns, raised his stress level, etc, and he had a long difficult time finding an avenue to exit owning them. I believe he did relatively well, but he wasn’t aware of the journey it was going to be.

That said, there are good opportunities in every market and the skill is in recognizing them and/or find those local experts/teams to help find and take advantage of those opportunities. But, if you look at affordable markets just because they are “affordable,” you may look back one day and realize they weren’t as “affordable” as they appeared. It may be like the metaphor of the drunk guy looking for his lost keys where the street light is, even though he lost them somewhere else. Maybe the lesson is to use a flashlight, or someone else’s, and search where your keys are more likely to be or wait until the sun s comes out.

Most seasoned investors will tell you that real wealth is made through appreciation. Ask yourself, do you want a $100k house that is worth $150k in some future time, or would you rather have a $250k house worth $375k in the same time period.

Got it. That additional detail helps.
So, assuming those more recent sales are considered to be in the same or similar "market area" and have similar locational appeal, than it would make sense that those would be more representative of the current Subject value, then the Dec 2023 sale.

It may be market dependent, but there are very few areas where zip code would be the defining factor in location or market area. But, some areas the zip code makes a big difference, like 90210 in Beverly Hills and other Bev Hills location with different zips.
As long as the locational characteristics, including zoning, appeal, school districts, etc, are similar.

So, yes, you're argument may be reasonable.

Longtime appraiser here.  

* 2-4 unit properties are residential and mainly valued based on sales-comparison, not income. Income approach should play some role, but not major. The fact that you increased the income from $2,225 to $4,041 is great and I would think should contribute to a higher valuation, but that depends on many other factors.

* Since you didn't significantly change the condition or quality of the property, any increase in value would be due to either you paying under market value originally, or appreciation due to buyers paying more for similar properties in the area. That would be for you to research and decide.

* The value of your property is based on SIMILAR recent sales. SIMILAR means unit configuration, # of units, bed/bath count, relative unit size, garage/s, etc. It also, and VERY IMPORTANTLY means SIMILAR LOCATION/AREA. What you are describing (i.e. expanding search area to 1-2 mile radius) sounds like "shopping for higher priced sales" as opposed to looking for recent similar sales in a similar market area. In other words, it sounds like you are saying, "I want to use these sales over here, because they appear to give my property a higher value." But, that's not how values or markets work and any reasonable appraiser will not widen their search criteria just because values aren't at a certain level. Although, they may widen their search if there are a lack of similar sales in the Subject's market area.

Based on what you are saying, the properties located beyond your property's zip code and within the 1-2 miles radius, are in a higher demand market area, with greater market appeal and therefore higher values - for some reason. And, if I (an appraiser) decide I need to use comps in a different area, I should analyze the area and see if any location adjustments are necessary (i.e. are those comps in a more desirable area/location, etc,). And if those comps are determined to be in a higher demand/desirable area they would be adjusted downward for superior location and the Subject value would end up in the vicinity of the closer comps anyway.

If there are "good" comps within close proximity and within the same market area as the Subject, an appraiser is not justified to look beyond that for higher valued sales comps. But, I have also seen many "questionable" appraisals/appraisers, so it is possible that you get someone who doesn't know any better.  :)

@Troy Parker

Ok, this one seems pretty straight-forward. The short answer is: have someone else paint it! You are too busy and have a full-time, well paying job to focus on it. And if I was one of your clients, I would much rather you put your energy into defending me in court, then learning how to properly patch, sand, tape, and prep the walls for painting.

I personally have painted a couple of my own projects, but I had the time and somewhat knowledge and experience, and also had run to the bottom of my budget at those times.

A few tips/comments which may be helpful:

*  As someone else previously posted - gets multiple quotes (3-5)
* Ask you fellow realtor friends/associates for painter referrals
* Check NextDoor.com for painter referrals
* Go to the professional paint stores (Dunn-Edwards, Benjamin Moore, etc) and ask them for referrals. Sometimes they won't refer anyone, but you can try. Also, ask them what the most popular colors and color schemes are, since they deal with painters and homeowner directly, they can be treasures of information of what accent colors are being used and where, etc.
* Call local property mgr's and/or ask for referrals from your relator friends/associates, and ask them for referrals - sometimes they will be nice enough to offer helpful advice, especially, if you tell them you will consider using them when you turn the house into a rental in a year

As a 27yr appraiser and Realtor/Broker, the paint job has minimal affect on the value, unless it is so bad that I have to mark it down in quality and/or condition. But, a nicely designed and painted house with well thought-out accent walls, etc may subconsciously contribute to my higher classifying in quality and condition, which may somewhat influence value, but not necessarily significantly.

Good luck!

Obviously, you are planning on doing your own property management once you purchase your first rental. What are your reasons for wanting to do that? There is nothing wrong with that, but I think many people don't fully understand their reasoning for doing it. Property management (pm) should be a line-item in the rental investing scenario, not a ways to cashflow or break-even . Meaning, if you need to do your own pm in order to make an investment work then the investment doesn't work, and you are trying to force it.

PM is a job or business, not a required skill for a rental investor. So, understand that if you are planning on doing your own pm, then you are signing up for a part-time (hopefully only part-time) job, which you still should account for as a separate line-item in your #'s. 

Yes, it is helpful to generally understand the pm space and workings, but the more important skill, to learn first, would be how to find, vet, and hire a good local property manager. To me, that is a more invaluable requirement for a rental investor. 

@Steven M.  This is a complicated situation, but @Roger D Jones gave you some great insight and direction for your specific case. He seems to have a very good idea of the mobile home space. As a 27yr appraiser I'll add just a little more general clarification of the valuation consideration/s you have. 

In appraisal, there are generally 3 approaches to value - sales comparison, income, & cost.
sales comparison approach is typically best and most reliable for residential real estate (4 units or less), income approach becomes more reliable for commercial properties (5+ or more residential units), and cost approach is better suited for newer builds, unique, and/or income producing properties. And many situations use a combination of the 3 approaches.

The single family house (sfr) is real estate, since it is (presumably) permanently attached to the land, etc. Assuming the MH's are not permanently attached on foundations, those are considered personal property, not real estate. But, they are income producing personal property because of the real estate and the rights that the real estate owner has.

So, as Roger said, you may be able to find relatively similar comparables (recent similar sales) to the Subject (sfr) and get an idea of that value. Then discounting that value by a certain amount or % probably makes sense, since a potential buyer may discount it due to the presence of the MHP (mobile home park). Local experienced realtors or experienced MHP owner/operators may have a better idea of what those discounts might be.

The MH values may be somewhat of a combination of cost and income. Cost would be the cost to replace those MH's minus depreciation (physical wear and tear). And there may be somewhat of a combination of site improvements included (sewer/septic, water service, etc, to the MH sites).

Then the income approach would be looking at the cap rates, as Roger mentioned. Refer back to Roger's post for the specifics. 

You have quite a bit going on with this and some of these following considerations may help:

* How much would the vacant land cost
* How much would the sfr cost to replace minus depreciation
* How much would the land with only the sfr be valued by the market
* How much might a typical buyer discount the sfr + land, for the presence of the MH's.
* What is the value of the "right" to have these income producing MH's on the land. 
* What is the typical cap rate (expected returns) on a MHP in the area
* What cap rate/returns are YOU wanting
* Obtain a copy of the past 2-3 years financials from the owner, to get an idea of actual income/expenses.
* Verify the "legal non-conforming" status of the MH's. From what you say is that they are not legal to be there based on today's zoning (non-conforming), but they are legal based on when they were installed (legal). Also double/triple verify the conditions in which they can or cannot be replaced - in case of fire, destruction, etc. In some municipalities, you can't rebuild a non-conforming improvement if more than 50% has been destroyed. 

All of this should go into your consideration of how much it is worth to the market and to you. And most importantly is what YOU want out of this deal! Valuation only makes sense with respect to what you are willing and able to do to get this deal. There's no easy answer to this valuation problem, but it sounds like an interesting opportunity. 

Oh, and as I think about it, this may be perfect for an owner carry situation. Maybe she wants the income as a monthly check as opposed to a windfall sale with potentially higher tax consequences, etc. From what you say, she doesn't want the hassle any more, so take that knowledge and see if there is a mutually beneficial way to structure this deal. 

Good luck!

Well, I am also in the business and part of my job is having access to the data. But, i apologize if it was too intrusive to post some of the details. Let me know if you want me to try and take some specifics out.

I'm also happy to discuss any details with you, if you like. I have close associate that is that area.

Quote from @Engelo Rumora:

Quote from @Jay Hinrichs:

Quote from @Engelo Rumora:

Quote from @Charles Granja:

Thanks Charles,

God Bless America mate and thank you for your service again 🇺🇸

The property was definitely not mispriced as the comps clearly indicate so that isn't debatable.

Other things, can be debated but definitely not the value of the property and the fact that the property was under sold.

Not sure why the witch hunt, but whatever floats your boat mate

"Based on current market comps and a $10,000 spruce up, I'd say the market value of this property is worth $89,900"

The comparable sale data is fact and the comparable sales don't lie.

Thanks 🙏

Our rehabs are basic. Never claimed to do A class rehabs. Plus, we have hundreds of videos on our YouTube channel showcasing exactly what our renovated properties look like along with our website. Why do such rehabs? To keep long term capex down from a “buy and hold” standpoint. The Toledo demographic does not require granite countertops for example. If we installed such higher end finishes, and anything ever needed repairing. The tenants would expect the same to be replaced thus decreasing the net return on investment. Also, a better finish to the rehab would not necessarily indicate a higher market rent. Our PM vacancies are at 5% or below at any given moment and that is due to renting the properties a little bit below competition and the “fair market” rent. Even tho in our opinion the current “fair market” rent is pretty high and not justified long term. We do “basic” rehabs to better the Cashflow for Investors. It wouldn’t be a problem for us to do a higher end finish, spend more on the rehab and just catch up on the needed profit margin by selling the property for a little bit extra for example. The expectation/ business model behind purchasing properties from Ohio Cashflow is buy and hold for the long term. 

Anyone reading, if you’re going to be buying a property from us and selling within 1-2 years, you will most likely lose money with all of the exit fees associated.

It’s not worth your time, risk or money so DON’T DO IT.

Although we have seen a lot of growth over the last couple of years, our market is notoriously known to lag behind all of the other markets that have a much higher demand and capital appreciation on a yearly basis. 

Another thing, to get the best possible price during an exit. It is advised to spend a bit of money to get the property to a homeowner purchasing standard.

Just my opinion 🙏👍

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Not sure how I ended up on this never-ending thread,– it’s been breathing for over a year. ...but since I'm here

I read through some of it, but not all, so, with that said.

• My impression is that maybe no one is specifically “at fault,” but maybe there was some miscommunication or unclear expectations, etc. This is especially common if the OP is a new/ish single-property rental investor and the market is a lower priced market. But, it seems like good intentions may’ve been there from the operator’s side, but maybe some puffy expectations were pushed toward the OP also.
• It is ultimately the Buyer’s responsibility to properly evaluate the investment prior/during purchase (appraisal, inspections, market evaluation, expectations, etc). But, I would also put the responsibility on the Company to help guide the client properly, fairly, and expertly in any transaction and general investing blueprint the client is focusing on - making sure they understand the risks, etc.
• *  Appraisal – NEVER blindly rely on a lender’s appraisal. As a longtime professional Appraiser/Broker, there are few appraisals/appraisers I would fully trust like that. Also, a “purchase appraisal” is typically done only for the Lender, and is NOT to be relied upon by anyone else for any other reason (it should say that specifically in the appraisal report itself). The Lender is the client, NOT the Buyer.

The Buyer would need to find and hire their own appraiser directly. Then you could also ask them for more specific local market questions, opinions, etc. If it is the Lender’s appraiser, they legally CANNOT discuss their opinions with anyone else but their client.

As a sidenote – I'm guessing this does not show the whole story, but what was posted above (the comps and MLS search criteria) is showing only a slice of the market (sales over $80,000 within the past year). That doesn't reflect a more comprehensive picture. I'm not going to go into the weeds on this, but it potentially leaves out pertinent market info.

• Inspector – I would find my own inspector, not one that is typically working with a particular seller or turnkey Co, etc. They should always be objective and thorough, but I would feel better finding a highly reputable one with little to no ties of ongoing business with a seller or turnkey Co.
• Local Expert/Market Knowledge – I would do my best to gather objective info on the local market to make sure it is in-line with my goals, etc. That may include an appraiser (as mentioned above), 1 or multiple local Realtors/Brokers (other than seller/turnkey Co.), local investors/experts, OTHER property management Co’s, data/stats, etc.
• Local Market Knowledge – knowing the specific area and market can be important in knowing the “best-practices” for having rentals in a specific market. As some have previously mentioned, water damage and m*** (we don’t say the “m” word 😊). Some areas may benefit from quarterly inspections looking for water intrusion or other potential issues before they become big, etc. Or making sure plumbing is properly insulated or protected for cold winters, etc.

I do have some minimal concerns about some of the comments quoted in a previous post above. This is regarding the “basic” rehabs, but I’m sure the comments don’t present a full picture. But, in my experience, I am typically able to do an “above-average” rehab for a fairly average, or “basic” cost. It may also reflect my specific market and material availability, etc. I can get an 8’-9’ prefab piece of granite under $100, and have it installed for $250 (with inset sink). I used to get an entire house done with granite installed for under $1k. An upgraded Quartz or composite counter is around $200-$250 + install. I also have enough leftover quartz material to do my adu counters for $0, due to it already have been expensed on a previous project.

And then a minimally upgraded flooring choice may translate to reduced wear and tear, and therefore, less future capex costs and higher perceived value to a tenant or prospective tenant.

Then this may bring up some concerns with “basic” rehab that is not seen, like behind the walls or quality of materials, etc. Some minimally upgraded rehab choices behind walls, below walls or floors, etc, may translate to lower capex and maintenance costs in the future.

Also, in my experience, some tenants are willing to spend some more money in rent for a higher perceived quality than a competitive available rental, and/or may treat the property better with more respect, and/or may have a longer tenancy, or the property may rent quicker.

So, the previous post’s comment, is incomplete and/or lacking some other considerations. "Value" does NOT equal cost alone.