profile picture

English Spanish

My New Blog

Investing in residential property? Protect yourself against illegal "flipping"

When you're considering investing in rehabilitated residential property, you're making a smart choice. Real estate values have been climbing at the same time demand for homes has been increasing — an impressive combination. 

Often, people and companies that sell rehabilitated real estate buy a dilapidated property, put a lot of money and sweat equity into it to make it attractive to a buyer, and then reap the reward when the property is sold for a lot more than the original buyer paid for it. There's nothing wrong with this; on the contrary, it makes more housing available at a time when it's in demand. And as noted, it's often a good investment choice for the eventual buyer.

But before you invest in a rehabilitated property, you should obtain a professional appraisal, from an appraiser with your interests in mind. Normally an appraisal will need to be performed on behalf of the lender, by an appraiser working closely with sellers, brokers and agents. Too often lately homes are "flipped" for considerably more than they were recently paid for without any substantial improvements to justify the higher price. You'd be the one left holding the bag — shouldn't you have someone on your side making sure your money is being invested wisely? 

It's easy to protect yourself. Hire a professional appraiser to ensure the property has had the improvements put into it that justify the asking (or agreed upon) price. If you're buying more than one property at a time from the same buyer, it's even more important to have them appraised by a professional working for you, instead of another party to the transaction. There are cost effective ways to protect yourself in an investment into many properties. We perform "drive-by" appraisals, sanctioned by housing giant Fannie Mae, which can be more cost effective than a full appraisal with an interior inspection. When combined with the expertise of a licensed home inspector, you should be able to buy with confidence that everything is as represented by the seller.

It's smart to always have an inspection done before closing on a property. It's equally important though to obtain an opinion of value from an appraiser. An inspector will tell you if everything that is present in the structure is functioning properly, what repairs may need to still be done, and whether there are any safety or soundness issues with the property. An appraiser can translate that into dollars. As rehabilitated, is the property worth what it's selling for? If something unexpected happened and you needed to sell right away, would you be able to recoup your investment?

As an investor, you need and deserve to know. Protect your interests with the help of a professional appraiser.

Find my original post here: https://plus.google.com/104577493294087566353/posts/jp72v5arYtj


Posted by Greg Gleich on October 31st, 2014 4:25 PMLeave a Comment

Subscribe to this blog
October 15th, 2014 9:52 PM
Assuming a decent credit rating, any potential home buyer can secure a loan for a house. Why? Because these transactions are secured by a very valuable asset: the home itself. If a borrower defaults on a loan, the risk for the lender is often only the difference between the value of the home and the amount outstanding on the loan, less the amount it costs them to foreclose and resell the property.

For this reason, lenders are very wary of lending more than a certain percentage of a homes value. Traditionally, this has been 80 percent. The cushion this provides the lender helps ensure that their losses from loan defaults are kept to a minimum.

In recent years, however, it has become increasingly more common to see home buyers using down payments of 10, 5 or even 0 percent. Naturally, loaning this much presents the lenders with a lot more risk. To offset this risk, these transactions often require Private Mortgage Insurance or PMI. This supplemental policy protects the lender in case a borrower defaults on the loan, and the value of the house is lower than the loan balance.

PMI has been a large money-maker for the mortgage lenders. The amount of the insurance often $40-$50 per month for a $100,000 house is commonly rolled into the mortgage payment. Given the size of the overall payment, this additional fee is often overlooked. Homeowners continue to pay the PMI even after their loan balance has dropped below the original 80 percent threshold. This occurs naturally, of course, as the home owner pays down the principal on the loan. On a typical 30-year loan, however, it can take many years to reach that point.

Until recently lenders were under no obligation to tell home owners when they had reached a point where the PMI can be dropped. That all changed in 1999, when the Homeowners Protection Act took effect. In most cases, this law now obligates lenders to terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy homeowners can get off the hook a little earlier. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent!

It is important to note that this law only applies to home loans whether first time or refinances that closed after July, 1999. Also certain other conditions must be met, such as being current on the loan payments. Buyers that purchased before July 1999 can also have their PMI removed, but they must initiate the process and though the lender is under no obligation to do so, most will.

Of course, there is another way that home owners equity can reach beyond the 80/20 percent ratio. Many areas of the United States have seen significant gains in the value of real estate over the past decade. In fact, certain areas have seen appreciation levels of 100 percent or more. Even those people living in areas with more modest gains may find that the value of their property has quickly grown to the point where the amount of principal they owe on their loan is less than 80 percent of the homes current value. Again, in these cases, the lenders are under no legal obligation to remove the PMI. In most cases, however, as long as the home owner has been prompt on their loan payments and dont represent an exceptional risk, the lenders will agree to remove the extra fees.

The hardest thing for most home owners to know is just when does their home equity rise above this magical 20 percent point? A certified, licensed real estate appraiser can certainly help. It is an appraisers job to know the market dynamics of their area. They know when property values have risen or declined. Many appraisers offer specific services to help customers find the value of their homes and remove PMI payments. Faced with this data, the mortgage company will most often eliminate the PMI with little trouble. The savings from dropping the PMI pays for the appraisal in a matter of months. At which time, the home owner can enjoy the savings from that point on.

For more information on PMI and the Homeowners Protection Act, try one of these links:

Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year


Posted in:General
Posted by Greg Gleich on October 15th, 2014 9:52 PMLeave a Comment

Subscribe to this blog
April 12th, 2014 9:04 AM

If you worked with appraisers ten years ago, you know how much technology has changed since then. What you might not realize is that there have been many developments in technology and e-commerce that have improved turnaround times on appraisal assignments. We’re taking advantage of them. Are you taking advantage of every opportunity you have to speed up the process? Here are some suggestions.

    1. Are you ordering appraisals online? With online ordering, you get automatic e-mail acknowledgements that the assignment was received, and fast, secure .PDF format report delivery. It’s the single biggest time saver available to both of us! We don’t have to retype information from a fax, and you don’t have to wonder whether we received the order.

    1. Are you providing complete and accurate information about the subject property? There’s nothing like being one number off on the street address to add unnecessary time to an appraisal assignment. And if you have a tax parcel number, plat map number, subdivision name or anything else that uniquely identifies the property, please pass it along. We even welcome lists of recent sales in the area — though be advised that professional appraisers must always do their own due diligence on comparable sales, and ours might differ from yours.

    1. Are you letting us know up front any details about the property that might make it unique? Cookie-cutter homes are relatively easy to appraise. What takes time is analyzing how unique features contribute to or detract from what otherwise would be a property’s market value. Let us know up front when you order your report if there are unique features of the home or surrounding area — for example, it’s had a recent addition put on, it’s subject to zoning restrictions, it’s prone to flooding. These are things we’ll find out on our own anyway, and knowing them as soon as possible makes your report arrive more quickly.

    1. Are you making the occupants of the home aware of what to expect?One of the most time consuming parts of the appraisal process is setting an appointment with the occupants of the home. Some homeowners are understandably uncomfortable with the fact a stranger wants to come in their house and look around and make notes. Some think they have to make the place spotless before the appraiser comes by, thinking that will make the house appraise higher. So they put off the appointment until they can get around to cleaning.

      Hearing from you — someone they’ve been working with on their loan — a little bit about the appraisal process, who we are, and especially that dusting and polishing won’t make it more likely their sale will close, can go a long way toward trimming the time it takes to inspect a home. Please feel free to point them to this website, where we have many pages of information for homeowners as well as others about the appraisal process. Encourage them to call us if they want to familiarize themselves with our staff and services. And tell them it’s in their interest to set the appointment as quickly as possible!

  1. Are you using our website as a resource to keep track of your report’s status?Phone and fax tag are a thing of the past with up to the minute status updates available online, anytime, 24/7. As each important milestone in an assignment is completed, that information is available to you online. It’s never been easier and faster to keep track of your report’s status.

Posted in:General
Posted by Greg Gleich on April 12th, 2014 9:04 AMLeave a Comment

Subscribe to this blog