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Top 3 Reasons to Invest in Real Estate
Many people believe that timing is the key in real estate industry. This article will examine why there is no such thing as “not a good time” to invest in real estate; and in fact, “time is money” is more applicable in real estate. Read to learn why.
Pitfalls and Perks of the New Mortgage Rules
This article discusses the impact of mortgage tightening rules on the three main areas of mortgage financing: self-employed borrowers, rental properties, and secured lines of credit (LOCs). While this means that many homebuyers will have to delay their purchases, the article provides a positive outlook of the policy change.
Turn your Home into a Money Maker
In this article you will learn how to make extra income even during recessionary periods by utilizing the unused portion of your property. With the assistance of a Renovation Allowance, you may be able to build a suite for as little as $158 per month. With newly built suite you have, you can generate rental income, which, in terms of income tax, is treated
Big City vs. Small Town Investing While location plays a vital role in the real estate industry, is it true that investing in high profile regions is better than investing in rural areas? This article will answer this question for you by providing a concrete example comparing Vancouver (big city) and Chestermere (small town).
6 Traps When Financing Real Estate Deals
This article explores the real estate traps investors encounter in the market and helps prevent you from falling for them. Some of these pitfalls such as lack of planning and not getting pre-approved can hinder portfolio growth and one’s ability to pay off mortgage payments.
Ideas to Increase Your Property Value Appraisal
Appraisal reports are vital no matter how you decide to finance your property. This article will not only teach you what to do in order to increase the value of your report but it also addresses the issues you should watch out for when reviewing your appraisal.
about BOOM Magazine BOOM Magazine is all about property investment. When this magazine was conceived, the market lacked some real content relating directly to property investment. It seemed like just about every realtor could contribute an article about selling your home, and it would be in blogs and magazines all over the place. BOOM Magazine was created for the property investor, by the property investor. Each month, you will see contributions from professionals in the market as they share their experience in the field. Within BOOM Magazine, you can expect the very best of our market - whether it relates to property investment, financing and leveraging or the different asset types, BOOM Magazine will be sure to have it as an editorial. Would you like to contribute to BOOM Magazine? Email editor@bestofourmarket.com and we’ll talk. Would you like to influence the direction of the magazine? Register to subscribe and vote on the polls on what type of articles you would like to see more of.
contributors Julie Broad
Dalia Barsoum
Julie Broad has been investing in residential real estate for over a decade across Canada. She’s a featured keynote speaker and an award winning real estate blogger with a passion for helping others transform their financial future with real estate investing.
Dalia Barsoum , MBA , FICB and Enza Venuto, AMP, CMP and are lending advisors with CENTUM Streetwise Mortgages #11789 and real estate investors with over 48 years of combined lending , financial and investment experience. The team provides advisory services and lending solutions tailored to Real Estate investors and different investment strategies
Connect with her at: www.revnyou.com
www.streetwisemortgages.com
Sylvia Sigurdson
Paul M. Hecht
For over 14 years, Sylvia has been assisting people with their mortgage needs, originally as a licensed realtor and now as an Accredited Mortgage Professional (AMP) at Mortgage Depot in Victoria, BC since 2004. She has specialized in helping her clients acquire investment real estate as part of a wealth-building strategy and excels at structuring mortgages with the greatest tax advantage in mind.
Paul M. Hecht is an investor, speaker, award winning Real Estate agent, Best-Selling Author of EVERYDAY Real Estate MLILIONAIRES™ How Average People REALLY Do It and Canadian Real Estate Wealth Magazine’s “Ask the Expert” columnist. www.PaulMHecht.com
www.mortgagecanada.com
Vivian Wu Vivian is a passionate real estate blogger who specializes in housing market in Canada. She has had much success educating the masses on the Alberta real estate market, specializing in real estate investment. Her main area of expertise involves analyzing economic fundamentals of various investment locations, such as population trends, job growth, gentrification, and area development. Vivian is a graduate of the Beedie School of Business at SFU. Connect with her at: vivian@viproperties.com
Paul Kondakos Paul Kondakos, BA, LL.B, MBA, has over a dozen years of experience in locating, financing and managing multi-unit residential apartment buildings within Canada. www.realityhub.ca
Top 3 Reasons to Invest in Real Estate Many people believe that timing is the key in real estate industry. This article will examine why there is no such thing as “not a good time” to invest in real estate; and in fact, “time is money” is more applicable in real estate. Read to learn why.
Top 3 Real Estate Investment RulesYou Dare Not Break By Paul Kondakos One of the most common catch phrases that I hear when talking to individuals about their reluctance to invest in real estate has to be “It’s not a good time”. It’s a very vague statement, which can be interpreted to mean either; (a) it’s not a good time for me personally to invest or (b) it’s not a good time to invest in the real estate market. Granted that there may be circumstances which preclude certain individuals from investing in real estate for any number of reasons, but for the rest of you out there, “it’s not a good time” is a statement which can end up costing you tens of thousands to hundreds of thousands in potential real estate gains in the long term. In fact, I believe “it’s always a good time” to invest in real estate (and let me be clear that I am talking about investing in cash flowing real estate and not talking about speculating in real estate hoping for future appreciation). When it comes to real estate investing, time is your biggest ally if you are invested and your greatest enemy if you are not. The phrase “Time is money” has never been more true when you apply it to real estate investing. Time facilitates the three most important pillars of real estate investing: 1. Mortgage Pay down Most individuals use leverage (eg. mortgage) to purchase an investment property, which makes it such an appealing investment. For every mortgage payment you make, a certain portion goes towards interest, but more importantly, a certain portion goes towards principal and contributes towards building your equity in the property. I like to think of it as “forced savings” which may sound a little paternalistic in nature but for most of us it’s a good thing. The amortization period is typically between 20 to 25 years, which means that after that time
frame you will own a free and clear property. As many like to think of their real estate investments as a retirement fund, given that you derive the greatest benefit of mortgage pay down the longer you own the property, investing NOW becomes all that much more compelling if you are counting on it for your retirement.
Paul@realtyhub.ca
BONUS: After several years of equity build up, you have the option to re-finance or put a Line of Credit on the property and take money out. Psychologically knowing you have this type of security in an emergency is immense. 2. Cash Flow As stated from the outset, investing in real estate means buying a property that provides monthly cash flow. The formula is relatively simple; Gross Income - Expenses - Mortgage Payment = Cash Flow. The beauty of real estate investing is that the cash flow is there from day 1 (if it’s not, then you are speculating and not investing). I don’t need to tell you the benefit of having extra income coming in every month. BONUS: For those that are sick and tired of their jobs and looking for a career change, once you have accumulated enough cash flowing real estate you can focus on managing your portfolio full time and enjoy the independence and flexibility that comes along with it.
they gambled on the real estate boom in the late 80’s and lost in a big way. On the other hand, the potential benefit of appreciation coupled with steady mortgage pay down and consistent flow is a big winner. Typically appreciation is calculated at 1-2% annually. So very conservatively speaking, by the time your mortgage is paid off, the property will have appreciated in the range of 25-50%. It’s more likely that you will see appreciation in the range of 100%++ but I like to be conservative.
3. Appreciation
BONUS: Appreciation can be like a lottery ticket. Over time some properties can become extremely valuable based on their geographic location and return 100%, 500% and even over 1000% depending on how desirable that location has become.
I have appreciation down as the last of the 3 benefits intentionally. As I stated above, investing in real estate strictly for appreciation can be a huge gamble. I know people that lost everything because
If you have ever seriously considered investing in real estate, every day that slips by is costing you money. As such, since you can’t start investing in real estate yesterday, you need to start taking steps TODAY towards making your first income property investment.
The Pitfalls and Perks of the New Mortgage Rules This article discusses the impact of mortgage tightening rules on the three main areas of mortgage financing: self-employed borrowers, rental properties, and secured lines of credit (LOCs). While this means that many homebuyers will have to delay their purchases, the article provides a positive outlook of the policy change.
The Pitfalls and Perks of the New Mortgage Rules By Sylvia Sigurdson The Office of the Superintendent of Financial Institutions of Canada (OFSI) implemented several changes in the mortgage world, the first of which came into effect on July 9, 2012 and the remainder November 1, 2012. Some of the effects were felt immediately as Canadians scrambled to purchase homes before the qualifying rules changed. After July 9th, the real estate market across the country came to a stand still, much like what happened when HST was introduced on new construction back in 2010. And like the HST, after the initial shock, buyers seem to be getting back to the business of buying homes again. Even CMHC (who has a very large market research budget and tends to be a neutral source when it comes to housing trends) shows a strong housing resale market and estimates values to remain steady with a slight growth in values nation wide. We are still living through the short-term effects of these changes, but what is the impact long term, both positive and negative? ``` The biggest impact we see in the mortgage world is an overall tightening of lending policies. These range from qualifying your high-ratio buyer to the savvy multi-property investor and we’re all making adjustments in order to sort through the maze of what lenders will and will not do any longer. High-Ratio Mortgages: Anyone wanting to purchase a home with less than 20% down was hit very hard indeed. Their borrowing power dropped nearly 20% so for many, this change has put them out of the market and they are forced to wait for a) housing prices to drop significantly, b) increased earnings or c) a huge rate drop. The media regularly implies there will be a price correction, but as mentioned earlier, CMHC stats disagree. Rates are
at an all-time low, leaving only the possibility of increased earnings, which can be very discouraging for homebuyers. This affects not only first-time buyers, but also the beginner investor, who is hanging on to their current property and purchasing another as their new owner-occupied home. Conventional Mortgages: Three areas of mortgage financing have been impacted on the conventional side. These are: 1) Self-employed borrowers 2) Rental properties 3) Secured Lines of Credit (LOCs) Self Employed: Overnight, we saw many self-employed business people lose their ability to either purchase property or to refinance their current properties. ‘Stated Income’ or ‘Low Document’ borrowing is mostly history. New practices are based more strictly on ‘claimed’ income. This includes income derived from rental properties as well. We’ve seen a sharp increase in lenders only using rental income claimed on T-1 Generals, which is problematic if the borrower has owned the property less than a calendar year, or if they’ve never rented it out before (as in the case of someone purchasing a home to move into, and converting their current residence as a rental). Rental Properties: There are a few changes that affect the purchasing of rental property, both directly and indirectly. One is the shortening of amortizations, even on conventional mortgages, from 35 to 30 or even 25 years. The mortgage payment increases make it much more difficult to qualify and simultaneously could
create a negative cash flow on a property that would normally be considered a great revenue producer. The investor is also forced to pay higher amounts towards the principal each month, thereby reducing the taxdeductible interest. Another is many lenders are now requiring a 25% down payment instead of 20%, so you’ll need to dig deeper into either your savings or your other property’s equity. Secured LOCs: Secured LOCs were also cut back from 80% to 65%, but in effect, as long as you have at least 15% of your mortgage payments as blended (paying off the principal over an amortized period of time), this can be considered a minor adjustment. Many lenders offer multi-level mortgages which can be structured with both blended and interest-only LOC levels to accommodate this requirement. The Upside All of these changes are forcing Canadians to be more responsible with their finances in general. Some don’t agree with targeting mortgages when the more relevant issue lies with consumer debt, but ultimately, the first-time buyers will have their homes paid off in 25 years instead of 30 or 35. And the investors will build up their equity more quickly. And people will be less likely to default on their mortgages because it was so much more difficult to get into the market in the first place. Because many buyers will need to stay out of the market for longer than they thought, this could actually improve the quality of tenants and possibly bring down the vacancy rates while people look for new ways to buy property. With change comes opportunity. Vendor financing is one area that can be explored, either with vendor take backs, or a lease-to-own. As a final ‘glass is half full’ thought, here’s something to reflect on when you’re feeling the frustrations of the changes: You monthly mortgage payment today, with a 25-year amortization, is actually lower than it would have been when 40-year amortizations were available and rates were higher. In other words, this correction is merely bringing us back to the same place we were four or five years ago, and the low rates today are more than compensating for the new regulations. Once we make the adjustments and move forward, we’ll find new solutions to new problems, just like we’ve always done.
Turn Your Home into a Money Maker In this article you will learn how to make extra income even during recessionary periods by utilizing the unused portion of your property. With the assistance of a Renovation Allowance, you may be able to build a suite for as little as $158 per month. With newly built suite you have, you can generate rental income, which, in terms of income tax, is treated differently as job income.
Turn Your Home into a Money Maker By Paul M. Hecht Tightening belts, pinching pennies and cutting back spending are typical forms of behavior during downward markets or recessionary periods. As an investor, you may want to do the opposite. I’m not suggesting you go on a spending spree, purchase a new car or take a lavish holiday. I am suggesting you spend money to make more money by converting something you may already have. Consider adding $350 to $1,400 per month to your income by adding a legal suite in the basement, loft or unused portion of your property. One of the challenges with this scenario is that a suite costs money. However, because you will be making money by spending money, you are actually investing, not spending. Spending money is when you buy something and the money never comes back to you. Investing is buying something that will return more money back to you than it initially cost. So where do you get the money to renovate or build a suite? With an existing property you can borrow the money from your bank or through a mortgage broker using the equity in your property. If you are in the process of buying a property, it is possible to borrow additional money called a Renovation Allowance which is then added to your mortgage. Since you will be receiving rent from the suite, lenders will consider a portion of this rent as additional income when qualifying for the loan. More income means that you can borrow more money. Some suites may take as little as $6,000 for used kitchen cabinets and appliances if a bathroom and bedroom(s) are already in place. If not and depending on the quality and complexity of a new suite, it can easily run upwards of $50,000 or more. Depending on the city, neighbourhood, number of bedrooms and quality of the suite, you will be able to collect from $350 to $1,400 per month in additional income. If you borrow $30,000 as a Renovation Allowance from your bank or mortgage broker at 4% interest
with a 25 year amortization to build a suite, your monthly payment will only be around $158/mo. You may also want to increase your home insurance to cover the new improvements. Assuming you could now generate $800/mo in rent minus your loan payment of $158/ mo, you would have an extra $642/mo or $7,700 annually. If you earn $65,000 per year at your current job, $7,700 is the equivalent of a 12% raise in a time when people are taking pay cuts and losing their jobs. This way you’re in control of your income. In regards to income tax, rental income is not treated the same as job income. With rental income in Canada, you are allowed to write off all expenses related to building, maintaining and running the new suite including the interest costs on the $30,000 loan. Any income tax paid on the rental income will be much less than income tax paid on job income, therefore putting even more money in your pocket. The first step in adding or building a suite is to confirm that your property has the correct zoning for a legal suite. If it doesn’t, you may be able to purchase a license to operate a suite or even change your existing zoning. Each municipality views suites and zoning differently and any new construction will need to comply with the current building code. You can find out all the details through a quick trip or phone call to your local City Hall’s Planning and Development Department. The second step is to call your bank or mortgage broker to ensure that you can borrow the money. If you are in the process of buying a home, ensure that the property you buy has the correct zoning prior to the purchase. If you cannot get proper zoning or a license for a legal suite, then consider opening up a room in your home (maybe your basement, unused bedroom or
loft) for a roommate, border, exchange student or local student via a homestay program through your local college or university. The benefit with this scenario is that in most cases you won’t have to make major alterations to the home nor will you require a loan or specific zoning. So before you tighten your belt, pinch pennies and cut all spending, consider taking control of your own income by creating your very own money maker. Then sit back and start cashing those cheques. Paul M. Hecht is an investor, speaker, award winning Real Estate agent, Best-Selling Author of EVERYDAY Real Estate MLILIONAIRES How Average People REALLY Do It and Canadian Real Estate Wealth Magazine’s “Ask the Expert” columnist. To learn how to make money in any market, visit www.PaulMHecht.com today.
Big City vs. Small Town Investment When you understand what your target market of tenants want to rent you’ll know what properties to buy, you’ll know why they like that area and that type of rental and as a result you’ll know what to say to your tenants to attract them to the property.
Big City vs. Small Town Investment By Vivian Wu “Location, location, location” is the mantra of the real estate industry. Well, no wonder it is the most commonly used adage as location does play an important role in the success of a property investment. When it comes to real estate investment in Canada, big cities like Toronto and Vancouver are probably the first options to pop in mind. However, while these high profile regions are often assumed to perform better and generate higher ROI’s than investment properties in rural areas, this assumption is questionable. Let’s dive in and compare a big city (Vancouver) to a small town (Chestermere) in Canada. The average home price is recorded at $609,500 in downtown Vancouver, which is significantly higher than the average home price of $435,000 in downtown Chestermere. This brings us to our first point: small towns offer a more affordable real estate market than metropolitan cities. Average rent of a two-bedroom condo in Vancouver is around $1,200 and $1,310 in Chestermere. Using these numbers and the average home prices of the two regions we have obtained so far, the price-torent ratio are approximately ($609,500/$1,200=508) 508 and ($435,000/$1310=332) 332, respectively. It is obvious that investment properties in Chestermere are much more attractive than those in Vancouver since the price-to-rent ratio is lower in Chestermere. Many times when investors invest in suburb communities, they are banking on the potential they see in these regions. Therefore, another factor to consider when it comes to property investment is the market’s employment and job growth. The Vancouver job market, as reported in The Canadian Press (shown in chart below), is flat and the unemployment rate is reported at 7.2 in October, which is higher relative to other cities across the country. In fact, the city is
experiencing a negative growth.
Chestermere Waterfront
While the job market is looking disappointing in BC, its neighbouring province on the east is experiencing strong growth. Being adjacent to Calgary, Chestermere not only benefits from the strong economic growth of the province but is also positively influenced by Calgary’s robust economy via ripple effect. In terms of job growth, Calgary ranks second in Canada with its labour market growing at 5% and 244,000 new job opportunities to be created in the near future. With these outstanding numbers, the city will continue to attract highly skilled workers from the country. In 2011, Chestermere was ranked the 5th fastest growing community in Canada with an impressive 50% population growth since 2006. Being just 20 minutes away from Calgary, Chestermere has become a popular place for the city workers to reside. With Calgary’s impressive economic performance as well as positive forecast, there is no doubt that new residents will continue to flood the town. This indicates a strong demand for housing in the area and we will witness steady growth in real estate prices down the road. On top of its healthy economic growth, Calgary has also boasted the second highest median income in
Toronto Harbourfront Canada year after year. According to the 2011 Census, the median income in Calgary is recorded at $89,490 while median income in Vancouver is $67,090 and national median income is $69,860. This shows that residents in Calgary have a significantly higher amount of disposal income than residents in other parts of Canada. Compare this with the real estate market of the two regions; it is clear that housing in Calgary is a lot more affordable than in Vancouver. After examining the real estate market, employment growth rate, economic standing and other factors that are crucial when deciding on the location of property investments, we can clearly see that high profile regions like Vancouver may not always be the best option. When conveniently located beside a city with strong economic growth, small towns like Chestermere can be a more promising area to invest. Very often small towns experience a higher growth rate than big cities and as discussed in this article, growth rate is definitely a worthwhile investment. Therefore, we can conclude that big cities are not always the best option for real estate investment.
6 Traps when Financing Real Estate Deals This article explores the real estate traps investors encounter in the market and helps prevent you from falling for them. Some of these pitfalls such as lack of planning and not getting preapproved can hinder portfolio growth and one’s ability to pay off mortgage payments.
6 Traps when Financing Real Estate Deals By Dalia Barsoum As a lending advisor that caters to real estate investors, I have seen many pitfalls that real estate investors make when it comes to financing their real estate portfolios. Some of those are fatal and can restrict the investors from growing their portfolio to the extent desired or may impact their ability to service the mortgage payments. In this article, I will share some of those traps so you can avoid them. •
Trap 1: Lack of planning and goal setting
Not being clear on your goals such as why are you investing in real estate, how much cash flow do you expect on a monthly basis from your investments, how many properties are required to help you get where you want to be, are you after short term or long term profits and what types of properties are suited for your portfolio , means that you will be tempted to buy anything and everything, only to realize at the end that you are somewhere where you did not intend to be. Upfront planning and ongoing review of your plan will help you stay focused, will save you money and will increase your chances of success. If you are planning on purchasing multiple investment properties, build a relationship with a lending advisor who has experience in financing real estate portfolios and who can help you develop a long term roadmap. It is imperative to speak with your advisor early on in the process so he/she can help you acquire and structure financing in a manner that supports your short and long term investment goals and ensures that you don’t hit a wall when it comes to financing the rest of your deals. •
Trap2: Not getting pre-approved
When buying a non-commercial property (up to 4 units), being pre-approved gives you a general
idea of how much you can afford to borrow. It means that the lender has verified your information and credit rating and agreed to provide you with a specific amount of money. Investors are in a much better position to go house hunting when knowing how much they can afford and have financing for. • Trap 3: Putting too much emphasis on interest rates While lowering the costs associated with financing is crucial. A lower interest rate alone does not always equate to the best loan. For example: a lender offering you a 6% interest and 35 years amortization will put in your pocket thousands in annual cash flow relative to another lender offering you a lower interest rate of 5% and shorter amortization of 20 years. In addition to amortization and the interest rate, investors should consider other aspects of the loan such as additional fees associated with commissions (especially in commercial loans) and penalties as well as the attractiveness of the loan terms. • Trap 4: Not having a relationship with a qualified broker When it comes to financing real estate investments (especially if you are planning on purchasing more than 1 property) , building a long term relationship with a qualified mortgage broker specializing in financing real estate investments is crucial. In the mist of the tight timelines of deal negotiation, some investors may default to their usual bank branch, a friend or a family member who is in the lending business or a referral by their realtor to help finance the deal. In many cases the deal does get financed, however without the lender’s or agent’s understanding of the investor’s long term game plan or because of the agent’s limited access to lending products and private financing, financing may be unintentionally structured in a way that restricts the investor’s ability execute the
plan as initially intended or that increases the overall financing costs of the portfolio. • Trap 5: Getting excited about 100% financing While one of the great advantages of real estate investing is leverage (i.e. utilizing borrowed money for asset acquisition) as it increases the investor’s return on investment, very high leverage carries risks that investors often oversee when going down that path. There are no lending programs in Canada at the moment that support 100% financing for investment properties. Investors who want to finance 100% of their purchase may be able to do so through various strategies such as: seller financing (only if the lender of the first mortgage allows it), using equity from an existing property or using funds from a line of credit. The risks of 100% financing are twofold: First, when you are financing 100% of the purchase price, your payments will be higher and If you have a second mortgage payment to add to a first mortgage, your payment will be even higher. Be sure your rental income will cover the entire monthly payment. Second, if your investment
time horizon is short (less than 5 years) and you are buying in a market cycle where real estate prices are declining, you could have a mortgage amount that is more than the value of the property. • Trap 6: not analyzing the property with a magnifying glass We have seen borrowers get into trouble of having to hold properties with significant negative cash flow or not being able to service their mortgage payments because they bought without factoring in the proper reserves for maintenance, capital improvements, and vacancies or overestimated the rental income or underestimated expenses. Build in a due diligence phase as part of your purchase agreement , which gives you the time to validate your assumptions about rental income through reviews of rent rolls and leases and validate your assumptions about expenses through reviews of existing expense receipts and tax assessment rolls. Moreover, factor in any extra maintenance / repair costs that may surface during inspection and a reasonable reserve for vacancies and rent collection. Finally, consider running worst case scenario of your analysis factoring in any potential interest rate increases over the holding period.
Ideas to Increase the Value of Your Property Appraisal Appraisal reports are vital no matter how you decide to finance your property. This article will not only teach you what to do in order to increase the value of your report but it also addresses the issues you should watch out for when reviewing your appraisal.
Ideas to Increase the Value of Your Property Appraisal By Julie Broad
Regardless of how you decide to finance your property, appraisal reports, required by most lenders, are a critical component to most real estate deals. As the borrower, you want the appraisal to come in as high as possible in order to minimize the amount of money coming out of your pocket and maximize the willingness of the lender to fund your property after reading your report. That being said, some appraisals are done better than others. Therefore, not only should you review the appraisal report carefully, you should take an active role in the appraisal by providing extra information about your property to your appraisal such as: • What you know about the area that your appraiser may be unaware of. For example, what prices homes around you have sold for and why— the house three doors down was priced lower than yours because its previous owners had too many pets and resulted in the house stinking like a barn. • Things you have done to the house to increase its value. You can include invoices to show the cost of work you did, along with the before and after pictures. Moreover, you can walk the appraiser through and explain what you did that specifically impacts the value in the area. • The rent rates in the area and back that up with some proof. For example, newspaper articles, leases from other properties you own in the area, or a letter from a local property manager.
Keep in mind that appraisals are an opinion of value, not a scientific fact. In the real estate industry, you often hear people say “A house is only worth what someone is willing to pay for it.” While there is some truth to this statement, we also know that as investors, we look for those opportunities to buy under market and create value. However, some appraisals default to the “safe” answer, which is what you usually pay for, unless you can explain why what you paid is not the market value. Once the appraisal is sompleted, take a close look at the report and review: • The comparable properties used: No two properties are identical, but to make valuation as accurate as possible, the comparable sale dates need to be recent; ideally 3 months or less, and 6 months old max. The circumstances of the sale also need to be similar. For instance, do not compare a foreclosure with a market sale or a non arm’s length transaction with an arm’s length one. Last but not least, location of the property needs to be comparable; preferably nearby. • Value assigned to special features: For example, an ocean view should command slightly higher value than a home nearby without a view. This is not usually taken into consideration in an appraisal but it should be. • Rent rates, replacement cost numbers and other specific details that change quickly: If the rent rates look out of date, you should suggest a couple of property managers to call. Once in a while we see that the replacement cost numbers that appraisers use look
rather low. When that happens, you should ask for the contact details of the builders to find out where the numbers came from. Whether it is before or after the report is completed, you have every right to make sure that the valuation is done correctly. As mentioned earlier, appraisals is an opinion, and it can be changed and certainly influenced. Good appraisers will do their research and obtain the best possible valuation, but everyone has a bad day. It is your job to follow the suggestions above in order to make sure that someone else’s bad day does not result in more money out of your pocket!
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