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jAZ
06-30-2007, 11:45 PM
So I am thinking about spending a few weeks taking some RE education courses as a local RE school.

I'm sure I've spent too much time watching TLC and their "flip this house" and "real estate pros" shows.

But I've been thinking about buying rental property for the most part. My sense is that "flipping" is a tough business better left to contruction & contractor types... I know squat about those things.

Anyway... it seemed to me that maybe the most important perspective to gain in RE is the ability to accurately appraise a property.

So I looked into it and RE Appraisal Courses are available.

Anyone gone through this process? How does it work? Is the certification process valuable? What about the "work" aspect?

Phobia
07-01-2007, 12:06 AM
I haven't though I probably should.

I'm guessing your real estate market may be more attractive to investors out there than it is here. It's so competitive here that I'm frightened to even dip my toe in the water.

jAZ
07-01-2007, 12:12 AM
I haven't though I probably should.

I'm guessing your real estate market may be more attractive to investors out there than it is here. It's so competitive here that I'm frightened to even dip my toe in the water.
See you'd be the guy to do the flipping... w/ your experience on costing and timing and ability to do both general contracting and swing the hammer yourself. Plus you are sharp.

Were you to take that step... where would you start? The Agent training? Or the Appraisal training? Assuming in the KC market since that's where you are.

el borracho
07-01-2007, 12:16 AM
You probably don't need the class which isn't to say that it wouldn't be helpful. Your realtor should provide you with comps on request and if you spend enough time looking you will start to know your market. One thing you can do while you are getting familiar with the market is get a wall map of your city and some different colored thumbtacks. Assign each color tack a monetary value and start plugging the appropriate tacks into the map each time you look at a house. Before long you should have a pretty good idea what things go for in different neighborhoods.

Phobia
07-01-2007, 12:16 AM
Since financing requires an independent appraisal anyway, I'd probably skip the appraisal training.

jAZ
07-01-2007, 12:31 AM
Seems like (in theory) an appraisal class would explain the components of valuation in a market. What drives incremental value.

Maybe that's more important in the buy/fixup arena. But it also seems to be a good foundation for an investor.

Maybe I'm way over complicating things.

alnorth
07-01-2007, 01:29 AM
If your buying Real Estate for investment, with all the hassles, risk, tenant issues, taxes, possible lawsuits, etc, I would probably only do it if it penciled out to a 12% annual return after all expenses and expected maintenance.

If I cant get 12% per year on a rental, then screw it, I'll go with broad diversification into the stock market.

ClevelandBronco
07-01-2007, 03:23 AM
If your buying Real Estate for investment, with all the hassles, risk, tenant issues, taxes, possible lawsuits, etc, I would probably only do it if it penciled out to a 12% annual return after all expenses and expected maintenance.

If I cant get 12% per year on a rental, then screw it, I'll go with broad diversification into the stock market.

alnorth's probably correct. I've been doing the rental real estate thing for something like 15 years. It was a no brainer when local real estate was appreciating in double digits. Over the past five years or so prices have plateaued. That didn't hurt me because I bought most of what I have before that happened.

There are problems, though. Upkeep is expensive. On one property I had to replace the entire kitchen (even the subfloor and walls) because of a pinhole leak that may or may not have been caused by installing a new dishwasher, depending on who you believe (short of the matter being decided in court).

Buying rental real estate and having other people pay for its value over time is a great way to acquire wealth. Here are the cautions I'd alert you to:

1. There are only so many toilets, sinks, refrigerators, ovens, roofs, acts of God that you can't even begin to imagine yet, etc. that you can realistically tend to before it starts to take time away from your career and your family. Be ready for that.

2. Some renters are ideal. Others don't give a damn. Your mortgage company will always want to paid on time, however. Make sure that you have a hard enough shell and keep some distance between you and your renters. You have to make them understand that your bill must be the first on their list. Make sure they understand that if they don't want to pay you first, they'll be free to live for a short time in their soon-to-be-repossessed car, but not in the property you own.

Your mortgage company includes a penalty for late payment. Write that same amount for late payment into your rental agreement. Also, add $50 to that penalty to account for the idiot renter that'll send you a bad check in an attempt to avoid the contractual penalty. (But never make a late payment your mortage company, no matter what your renter is doing to you.)

I've learned so many lessons since I've been doing this that I could go on forever. (Maybe I should write a book.) If you have specific questions, fire away. As I remember specific lessons, I'll offer them.

Bob Dole
07-01-2007, 03:41 AM
Step 1: Buy shitholes.
Step 2: Section 8.

ClevelandBronco
07-01-2007, 03:44 AM
...If I cant get 12% per year on a rental, then screw it, I'll go with broad diversification into the stock market.

BTW: To address this specific point of what alnorth posted, I'd cite favorable tax scenarios of real estate investment. If you have a large enough income to take advantage of the allowances, you can save thousands of dollars in income taxes, even if you are generating positive cash flow from your investment. Your taxable income will actually be reduced by a fictitious "loss" in your real estate investments, and your reduced income taxes can be even more profit that you can enjoy.

Real estate depreciation is logically absurd, but it's legally real. The savings in taxes against your earned income has to be figured when you do a profit and loss analysis. The first two years I invested I did my own taxes. That was an ignorant move. I've since used a CPA and she's saved me tens of thousands of dollars in taxes while I've paid her only several thousand. She's been well worth what she's cost me.

ClevelandBronco
07-01-2007, 03:45 AM
Step 1: Buy shitholes.
Step 2: Section 8.

I did section 8 on one property. I won't do it again.

ClevelandBronco
07-01-2007, 03:47 AM
Step 1: Buy shitholes.
Step 2: Section 8.


You might be right. I missed step 1. I didn't buy shitholes.

alnorth
07-01-2007, 09:49 AM
BTW: To address this specific point of what alnorth posted, I'd cite favorable tax scenarios of real estate investment. If you have a large enough income to take advantage of the allowances, you can save thousands of dollars in income taxes, even if you are generating positive cash flow from your investment. Your taxable income will actually be reduced by a fictitious "loss" in your real estate investments, and your reduced income taxes can be even more profit that you can enjoy.

Real estate depreciation is logically absurd, but it's legally real. The savings in taxes against your earned income has to be figured when you do a profit and loss analysis. The first two years I invested I did my own taxes. That was an ignorant move. I've since used a CPA and she's saved me tens of thousands of dollars in taxes while I've paid her only several thousand. She's been well worth what she's cost me.

Yep, and if you ever sell the property, youll have to recapture all that depreciation deduction at a 25% tax rate, which eventually makes that whole thing close to a wash or a small benefit if you invest what pretty much amounts to a "loan" on your taxes, unless you hold the property or do 1031 exchanges until you die.

You cant choose to not take the tax deduction to avoid the recapture of depreciation, because the IRS only keeps records for 3 years, and will assume you took the depreciation deductions.

Hog Farmer
07-01-2007, 10:11 AM
If your buying Real Estate for investment, with all the hassles, risk, tenant issues, taxes, possible lawsuits, etc, I would probably only do it if it penciled out to a 12% annual return after all expenses and expected maintenance.

If I cant get 12% per year on a rental, then screw it, I'll go with broad diversification into the stock market.


Entering the stock market requires money. The key to getting rich is to use other peoples money. Find real estate with some owner financing (20% at least), evaluate the rental market and buy appropriately. Get 100% financing on 15 year notes. Figure the return however you want but in the end you have property that has been paid for by other people.

alnorth
07-01-2007, 10:29 AM
Entering the stock market requires money. The key to getting rich is to use other peoples money. Find real estate with some owner financing (20% at least), evaluate the rental market and buy appropriately. Get 100% financing on 15 year notes. Figure the return however you want but in the end you have property that has been paid for by other people.

Thats all figured into it too, I dont want to be dismissive. Good property in an area that will bring nice rent (say 0.5% to 1% of the value per month) at a positive cash flow after maintenance, insurance, legal bills, and expenses can beat stock market returns, but finding those opportunities is not a no-brainer. Some people who jump in without thinking end up with a bad negative cash-flow where the rents arent enough, the tenants destroy the place, and they constantly have to feed money into the project out of pocket.

Your investment is the down payment, any out-of-pocket expense you have to pay, and your time at whatever rate you think you are worth (or the cost of a property manager if you decide to hire one). Years or decades down the road, after you sell and pay off the tax, if your (after-tax Profit in tomorrow's dollars) > (Accumulated Investment in tomorrow's dollars) * (1.12 ^ Years of ownership), then I'd say it was worthwhile. (Dont overestimate the appreciation, we had a good run, but its historically been closer to 3-4%, meaning the other 8-9% needs to come from the impact of the tenant paying down the mortgage) If its less than a 12% return, I'd say you arent being fairly compensated for the risk and headaches you endured, and you would have been better off in the market.

The above isnt some magical formula or a law handed down by the Gods of Real Estate, its just my personal opinion, for whatever its worth. As an Actuary, I usually break out the math and (over)analyze investment decisions to death.