There’s lots of pieces that go into a loaning getting approved for a loan but a really really big one is the appraisal and in today’s market and a lot of places prices are going crazy and appraisals are having a hard time keeping up so we’re gonna talk a little bit about appraisals what they are how they’re valued and what you might be able to do if you get one that’s less than the value you are expected to stay tuned let’s jump right in.

Welcome to short term rental riches will discuss investing in real estate with a specific focus on short term rentals quick action items to wire. Scale your portfolio I’m your host Tim Hubbard.

Welcome back to the shore terminal riches podcast we’re talking this week about appraisals which is a huge piece of your loan of your mortgage loan and the loans as we know from prior processes are a huge piece of our investment philosophy I’ve talked about loans quite a bit the past on our podcast so if you haven’t yet you can go to our website S. T. R. riches.com you can search for loans or lending and you can find all the podcasts episodes that we’ve come out with talking about loans but this week I want to talk about appraisals because. Things are going crazy in the U. S. actually in the world with asset prices and that is real state because we’re just pumping so much money into the economy that it has to go somewhere right in a lot of that money is finding its place in real state but there’s a challenge here our appraisals have to come in at a certain value in order for a loan to go through so this week we’re gonna talk about one appraisal is the different ways that appraisers appraise property there’s 3 main ways some differences between commercial and residential appraisals because they’re different and then lastly what happens if we get an appraisal that’s less than what we were expecting it could ruin your your loan it could make it so that you can’t get a loan on the property so we’re gonna talk about a couple things that you can do if that happens but first of all what is an appraisal well simply put appraisal is the value of the expected value of your property so we use appraisals for commercial and residential property at shopping centres of appraisals small single family homes have appraisals multi family buildings apartments have appraisals most all of the time that we are using bank financing or any financing unless maybe it’s a hard money loan where you get a loan from a friend or some is not requiring appraisal but almost all the time we’re going to need an appraisal there are several ways that appraisers appraise property so the first way is through a sales comparison and that’s gonna be the most familiar for everyone that’s what’s used for residential properties it’s not always used for commercial properties but that’s what’s used with residential property so if you’re buying a single family home for $200000 the appraisers gonna look within a certain time frame at all the sales come. Arms around that property within a certain distance as well to see what these type of properties are selling for and they’re going to use that to come up with the estimated value and when they present the appraisal to you you’ll see the sales comes in there as well so that’s the most common way but you also see on the appraisal that there’s 2 other methods on there that they’re going to include one is the cost to build the property so that’s gonna be take away the land what does it cost to actually build this property that’s not used very often and then the third way would be an income approach and so this gave me more for investment property if it’s an apartment building for example how much income is coming in and then Prazer can use. Read comes again within a certain distance of the property has to be a similar properties you know you can’t get right comes from a G. class ran down property to compare for new purchase of an A. class apartment building for example so those are the 3 ways but most all the time the nursing to go with the sales approach now if we’re doing a commercial loan I just want to talk about real quickly because it is different they do take longer and they do cost a whole lot more money to so I’m doing to refinance is right now both on apartment buildings and the price for a. Praise all for commercial loan can be significantly higher than your appraisal for single family home single family home $500000 really really depends what it’s probably somewhere in there your commercial appraisal can be 15 honored to 3 grand I mean if you’re praising a really large apartment building for example that’s quite a lot of work and so it can be thousands and thousands of dollars and the prisoner has to do a lot of work so you’ll find that a commercial appraisal can be a lot bigger might be like 75 pages just totally depends on the size of the property but they’re gonna have some really important and valuable information in there your appraisal for your residential homes going to be a lot smaller and most of the time these days appraisers are using some sort of like preset up documents so they just plug in the information that comes out kind of the same format so the price is gonna be different the time it takes to appraise it is also going to be different so what happens if we’re trying to get a loan and there’s no coughs or the cops for our property here are valued less than what we’re paying for the property well it could screw up our loan it traditionally a lender wants to see a certain amount of equity in the property so if you’ve heard the term loan to value that is what lenders will lend to the total value so a lot of times for an investment property that might be 70 percent loan to value 75 percent loan to value meaning the person purchasing the property the aspen down 30 percent or 25 percent and the lenders going to loan the rest so let’s say someone’s buying a property for $0 and the loan to value from the lender is 75 percent so the loan 750000 are property of $0 now what happens if you get your appraisal back and that $0 property appraises at 900000. While. A couple things are gonna happen they’re not going to give you that same $750000 for property that was valued at $900000 because they would be going above their loan to value I don’t know exactly what that percentage will be but they would be blown in 85 percent just for example of the value so couple things have to happen either the purchase price has to go down which means you have to negotiate with the seller or you have to come up with the difference between what the lender will loan to you so 75 percent of the 900000 to still go to that $0 purchase price so either renegotiate with the seller you have to come up with the difference which if you’re in contract you only have a certain amount of time normally to come up with the funds so that could be tricky the third option is that you could detest the appraisal you could ask to have it reappraised which I’ve done before and I’ve been successful at before it’s always good if you’re doing a refinance to provide the lender as much information as possible if you renovated a property and you added a bunch of value you want to show them that you want your value to be as high as possible but on the purchase you probably won’t have that information to give to them but you can detest the appraisal you can find your own sales comes to show to the lender and say Hey this just this is an accurate there’s a property down the street that sold for this it’s possible the appraiser missed it in the report I remember a few years ago actually this part like 5 years ago I was selling a property in California and the loan the appraisal came in way less actually was a refinance to take them back Charles refinancing points of money out and it came in really lower at least what I thought was really low and we got a new appraiser and in a couple weeks we had a value it was 6 figures higher than the other. The appraiser I mean within a couple weeks because they either missed coms or whatever was so do you get an appraisal back and you’re not happy with it contest it you know there’s good odds that you can have it altered in some sort now it’s probably gonna be a little easier to test as a residential property than a commercial property but not necessarily I’m doing a commercial refinance right now and I just got a appraisal back for a small apartment building. It was way less than what I was expecting and I know if I put it on the market right now I could sell the property for way more than what the appraiser valued at that the challenge here is that there were no sales cops is a smaller apartment building and a lot of times apartment buildings don’t even show up on public data they get traded off the market so the praise or really didn’t have any good cops to go off of now it was still a good appraisal I’m happy with it and there’s good loan terms so I’m just going to have a little more equity in the property and taking a little less out on a cash out refinance so it’s all good I’m happy but if this happens to you and this is happening to lots and lots of people where they’re trying to buy a home right now because there’s so much money in the market and home prices are going crazy crazy high in some markets a lot more than others there’s no cops for people to evaluate these properties at so try those 3 approaches if if you get an appraisal back and you’re not happy with it ask to have it reappraised see if you can work out the deal with the seller I’ve had that happen before as well we’re able to get a little lower purchase price and then the third option is just happen to come up with the money so be prepared for that if you’re in a real competitive market and that could happen hopefully it doesn’t but just so you’re aware that’s a little bit about appraisals they’re constantly changing the way we do all these things but that strategy for valuing properties has been pretty similar for a long time it’s based off compatible information in the market hopefully that helps clarify things a little bit and hopefully you guys are doing wonderful wherever you are in the world if you haven’t yet check out our new website S. T. R. riches.com you can find information there on whatever topic you want you can just search but you also have an easy way to. Request new topic so I love talking about this stuff I love getting information out there and I love hearing back from you guys so thank you for joining us again for another week and until next time have a wonderful day I have a wonderful week. There’s so much money to be made the short term rentals but it all starts by having the right property if you guys haven’t yet seen my free ebook on our website rest methods.com head over there and get a copy it’s going to break down what I look for in a property in some great short cuts so that you don’t have to spend hours and hours researching at over rest methods.com and you can grab your free copy there if you want a crash course in everything I’ve really learned to short term rentals in over 5 years managing over 15000 Gasol recorded on our last live event I am happy to say we broke it down really nicely into a bunch of different modules that you can watch at your own pace it takes you from start to finish finding a property we talk about analyzing the property but then also some of the more important pieces how to find your team and how to set up everything so that you can run your operation is passively as possible and free up your time you can find that it rests methods.com forward slash virtual.

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