Most investors start small; say one fixer-upper house that you’ve bought at a “Great price”.  It needs some TLC and the neighborhood is a little sketchy, but with work in the evenings and on the weekends, you can whip it into shape and make it a nice home for someone that will appreciate your hard work as much as you do.

You put your “For Rent” sign in the yard and you start getting calls.  One potential renter wants to look at the property at 7 PM.  You show up a little before hand and wait….and wait….and wait.  You call back the number that you were given and the number has been disconnected ….Welcome to the real world of land lording…

Or say a “Nice Couple” with small children wants the house badly. She works part time nearby at the Quickie Mart and he’s a contractor.  In fact if you will rent it to them, he will make all sorts of “Improvements” to the house starting with painting the newly painted interior walls bright orange and passion pink   He also knocks out a wall to open up the kitchen.  For some reason, however these projects are never completed.  He reasons that with all of “His Work”, hours and expense that he deserves a “Discount” on his rent. You, of course disagree.  Your disagreement escalates and he quits paying rent altogether and calls the City to report “Code Issues”.  The City Inspector sends you a whole list of items which must be repaired within 30 days. Not only do you have to pay to evict this tenant, but you will have to repair his damage and address the City issues, as well.  If you don’t follow the eviction process to the letter, the tenant will be able to stay in the property for additional time at your expense.  Oh….and unpaid water bills, guess who gets stuck!

 …..And vacant houses in sketchy neighborhoods…..well if they had copper plumbing, furnaces, appliances or air conditioning units, they won’t for long….

One can reason that with the number of people being foreclosed on that everyone needs a place to live.  While that may be true, it is also true that unless those folks financial situation has changed for the better, paying rent may be as unlikely as making a mortgage payment. 

Paying real estate taxes and property insurance on top of repairs can kill your cash flow.  Although these costs are deductible and there are certain tax advantages to owning real estate, no smart investor wants to be losing money on anything other than paper. 

To be successful as a landlord you need a “Thick Skin”.  Evicting people is not fun and you will get called everything in the book. Dealing with the City is also not fun.  City code inspectors are often on an ego trip and enjoy dictating to those they may be envious of.  And then there is court of course, dealing with bailiffs, set outs, etc.

Being a successful landlord is a tough, long-term proposition.  It’s also 24 hour a day job and not for the faint-of-heart.  Anyone looking for a “Quick Buck” is not likely to find it here. However, it is also something that anyone willing to WORK VERY HARD and SMART, CAN DO and find success.

Welcome to the world of residential real estate appraising. Not only does “The Underwriter” look over your stuff, but they also review the appraisal of the home you are purchasing or refinancing. What qualifications does “The Underwriter” have to review appraisals? Most likely, little to none. This has been a long- standing problem, with “The Underwriter” making the appraiser’s life miserable, demanding more of this or that while rarely having a clue about serious valuation issues. This problem escalated with the mortgage melt down of the past few years. To appear as though they know what they are doing, underwriters load up their files with miscellaneous make-work. You know the old saying, “If you can’t dazzle them with brilliance, baffle them with B.S.”. I estimate that 25% of a residential appraiser’s time is spent providing “The Underwriter” with letters, additional sales, listings, etc. Many appraisers actually hold back certain data anticipating what “The Underwriter” will be demanding. No matter how complete an appraisal is, something additional is always wanted. This has led to a “Hate-Hate” relationship. “The Underwriter” wastes “The Appraisers” time. “The Appraiser” tells “The Underwriter” that they are ignorant, and “The Underwriter” knows that that is really true.

I have no doubt that this archaic and silly practice has played some role in the mortgage fiasco of the past few years. It is never wise to put someone in a decision-making position for which they are not qualified.

It’s nice to see that at least one lender is actually applying common sense by eliminating “The Underwriter” from the valuation process; instead having appraisals reviewed by appraisers. I am pleased to learn that Huntington National Bank is setting up a staff of review appraisers, whereby all residential appraisals are reviewed by someone who should know what they are doing. A good reviewer will quickly spot a fraud or overvaluation, since they know the trick’s of the trade. I am certain that in the long run this change will be cost effective for the bank. Should this practice be adopted on a wide-scale basis, it would also improve the financial soundness of our economic system.

Once your project is complete you go to your neighborhood bank to refinance and get cash out. You reason that the home was worth $120,000 when you bought it and you’ve put $47,500 into it, so it must be worth $167,500.

As appraisers, we commonly face this kind of logic. The reality is that the upper end of the neighborhood price range is $130,000, so you have over improved your property significantly. Your payback will be dimes on the dollar.

Cost and value are two different things. Cost is cost, but value is a little more abstract. In real estate, value is generally viewed in terms of the marketplace, or what you could expect to sell the property for if it were properly exposed for sale on the open market. It assumes that both buyer and seller are both well-informed and have come to a meeting of the minds with regard to price, terms, etc.

By having a “Hypothetical appraisal” made prior to starting the project, it may have been possible to avoid the high level of over improvement. In such an appraisal, the appraiser assumes that the proposed improvements have been completed. His value conclusion is based the property “As proposed”. In order to make such assumptions the appraiser would typically reply upon the proposed plans and specifications.

Clearly in the above scenario, a scaled back version of the project would have been more appropriate.

For anyone considering home improvements, there is an excellent report titled “Cost vs Value” published by Remodeling Magazine which can be found on line.

Wayne Swift, MAI

NOTE: Any numbers used herein are only for demonstration purposes

 An article in today’s Columbus Dispatch mirrors the same trends in northwestern Ohio. An agricultural economic expert attributes price increases to higher corn futures contracts, federal ethanol subsidies, low interest rates and export-encouraging monetary policy.

 It will be interesting to follow the trends in farm land prices over the next several years.

Wayne Swift, MAI

With the economic downturn and decline in housing prices, the County Appraised Value may be significantly higher than the actual market value of your property. 

I appraised two homes last week, one for a divorce and one for a mortgage loan.  The divorce concerned an average house in Upper Arlington (2,800 sf, 8/4/2.5).  The county appraised value was roughly $150,000 more than my market value estimate.  I was not being conservative.  This over valuation is costing my client more than $3,000 per year.  When I brought to her attention she said she knew the taxes were high, but didn’t know she could do anything about it. 

The second scenario involved a modest home in north Columbus.  The people had purchased the the home in 2005 for $175,000 and the county now had it appraised at $211,000.  I appraised it for $170,000.  I noticed during my inspection that the County had miscalculated the square footage of the home indicating it had 1,900 sf+- by double-counting in their computations.  The property actually had 1,600 sf+- or 300 sf less.  These people have been paying at least $1,000 per year extra due to the Counties mistake.  By contacting the County Auditor they should be able to obtain the proper size and more appropriate value.  They had no clue that the size of their home incorrect.

 In both situations the people involved could have saved themselves a significant amount of money by just paying attention and being proactive.  It is imperative that the county have an accurate basis on which to base their valuations.  If the size is incorrect, your value will be incorrect as well.  Since your taxes are determined based on the relationship between the tax rate and the indicated appraised value they will be off-the-mark as well. 

 There’s no point in paying more taxes than you have to.  By making sure that the information the county has regarding your property is accurate you might be saving yourself a significant amount of money. 

You may think that you as an individual my not have occasion to hire an appraiser.   You may want to think again. 

You need to be your own advocate when it comes to dealing with your real estate tax values and the accuracy of the information the county has pertaining to your property. 

With the economic downturn and decline in housing prices, the County Appraised Value may be significantly higher than the actual market value of your property. 

I appraised two homes last week, one for a divorce and one for a mortgage loan.  The divorce concerned an average house in Upper Arlington (2,800 sf, 8/4/2.5).  The county appraised value was roughly $150,000 more than my market value estimate.  I was not being conservative.  This over valuation is costing my client more than $3,000 per year.  When I brought to her attention she said she knew the taxes were high, but didn’t know she could do anything about it. 

The second scenario involved a modest home in north Columbus.  The people had purchased the the home in 2005 for $175,000 and the county now had it appraised at $211,000.  I appraised it for $170,000.  I noticed during my inspection that the County had miscalculated the square footage of the home indicating it had 1,900 sf+- by double-counting in their computations.  The property actually had 1,600 sf+- or 300 sf less.  These people have been paying at least $1,000 per year extra due to the Counties mistake.  By contacting the County Auditor they should be able to obtain the proper size and more appropriate value.  They had no clue that the size of their home incorrect.

In both situations the people involved could have saved themselves a significant amount of money by just paying attention and being proactive.  It is imperative that the county have an accurate basis on which to base their valuations.  If the size is incorrect, your value will be incorrect as well.  Since your taxes are determined based on the relationship between the tax rate and the indicated appraised value they will be off-the-mark as well. 

There’s no point in paying more taxes than you have to.  By making sure that the information the county has regarding your property is accurate you might be saving yourself a significant amount of money. 

You may think that you as an individual my not have occasion to hire an appraiser.   You may want to think again.