Latest / Real Estate Note Investing / Episode 39: Estimating Property Value

Transcript

Episode 39: Estimating Property Value · Real Estate Note Investing

• 0:00
  SPEAKER_00: Welcome to the show, where you'll learn how to invest in mortgage notes, the savvy real estate investor's secret weapon to create cash flow without tenants and property acquisitions for pennies on the dollar.
• 0:12
  SPEAKER_00: My name is Robert Haitha, founder of Fix Notes, and my mission is to make note investing ethical, profitable, and accessible for you.
• 0:20
  SPEAKER_00: In every episode, we're democratizing the industry to put these powerful Wall Street assets into the hands of mainstream investors like you.
• 0:29
  SPEAKER_00: So without further ado, let's get into this show where you're in good hands with my AI clone.
• 0:34
  SPEAKER_00: Let's go.
• 0:37
  SPEAKER_00: This program is for informational purposes only and should be independently verified before taking action.
• 0:44
  SPEAKER_00: Property value is one of the most important inputs in note investing, and how accurate you need to be depends entirely on the deal in front of you.
• 0:52
  SPEAKER_00: When there is substantial equity cushion between the property value and the total debt secured against it, a wide range of estimates is fine.
• 1:00
  SPEAKER_00: A significant swing in value does not change your equity coverage or your risk in a meaningful way.
• 1:06
  SPEAKER_00: But when the equity position is tight or when you are in first lean position where the property itself is your primary protection, accuracy matters a great deal.
• 1:15
  SPEAKER_00: Knowing when to invest time and money in a better valuation is part of the skill.
• 1:20
  SPEAKER_00: There is a full spectrum of property valuation methods ranging from free and fast to paid and precise.
• 1:26
  SPEAKER_00: On the free end, you have automated valuation models, or AVMs.
• 1:32
  SPEAKER_00: Zillow, Trulia, Realtor.com, Chase's Home Valuator, and a number of other platforms will give you an estimated value in seconds with nothing more than a property address.
• 1:42
  SPEAKER_00: No single AVM should be trusted on its own.
• 1:46
  SPEAKER_00: Each one uses different data and different algorithms, and they can vary by tens of thousands of dollars on the same property.
• 1:53
  SPEAKER_00: The right way to use free AVMs is to pull several of them, line them up in a spreadsheet, and look at the range.
• 1:59
  SPEAKER_00: If most of them are clustering around a similar number, you have a reasonable starting point.
• 2:04
  SPEAKER_00: If they are all over the place, that is a signal the property is harder to value and you may need to go deeper.
• 2:11
  SPEAKER_00: Paid AVMs, such as those from Core Logic or similar providers, offer a bit more precision by incorporating more robust comparable sales data.
• 2:19
  SPEAKER_00: They also often come bundled with other vendor products you may already be ordering, so if you have access to one as part of a due diligence package you are already running, it is worth including as a data point.
• 2:30
  SPEAKER_00: That said, a paid AVM alone is still just a model.
• 2:33
  SPEAKER_00: It has not seen the neighborhood, it does not know whether the roof is caving in, and it can be thrown off by unusual comparables in thin markets.
• 2:41
  SPEAKER_00: The method that offers the best balance of cost, time, and accuracy for most note investors is a manual review of recently sold comparables.
• 2:50
  SPEAKER_00: This means going to Zillow or a similar platform, filtering for recently sold homes in the same neighborhood, and identifying properties that are similar in size, age, bedroom, and bathroom count and condition.
• 3:01
  SPEAKER_00: You are doing a desktop appraisal, the same work a professional would do without leaving the office, using the same publicly available data.
• 3:08
  SPEAKER_00: When you are training yourself or a team member to do this, the goal is to find three to five solid comparables, note the price per square foot, and apply that to the subject property with adjustments for any meaningful differences.
• 3:19
  SPEAKER_00: It takes practice, but it is a learnable skill and one that you will use constantly.
• 3:24
  SPEAKER_00: While you are looking at comparables, always pull up Google Street View for the subject property.
• 3:29
  SPEAKER_00: Check the image capture date because Street View images can be years old in some markets.
• 3:33
  SPEAKER_00: If the image is recent, you can get a meaningful visual read on the condition of the home and the surrounding neighborhood.
• 3:39
  SPEAKER_00: A property that looks significantly worse than its neighbors is going to be worth less than comparable sales suggest, and that affects your equity calculation.
• 3:47
  SPEAKER_00: Above the manual desktop review, you have desktop appraisals by licensed professionals and broker price opinions, or BPOs.
• 3:55
  SPEAKER_00: A BPO involves a licensed real estate agent or broker physically visiting the property, photographing it, and providing a market value opinion based on local knowledge and MLS access.
• 4:05
  SPEAKER_00: BPOs run around$100 and are the most reliable method short of a full appraisal.
• 4:11
  SPEAKER_00: They are worth ordering when the equity position is tight, when you are buying a first lien where property value drives your entire bid, or when the free and manual methods are giving you inconsistent results and the deal is large enough to justify the cost.
• 4:24
  SPEAKER_00: The guiding principle is simple.
• 4:26
  SPEAKER_00: Let the equity position in the deal determine how much precision you need, and invest in the valuation method that matches that need.
• 4:32
  SPEAKER_00: Do not spend$100 on a BPO for second lien with deep equity coverage.
• 4:37
  SPEAKER_00: And do not rely on a single free AVM when the difference between right and wrong could determine whether you are profitable or not.
• 4:43
  SPEAKER_00: Next time we are going to look at property occupancy, how to determine whether a borrower is actually living in the home, and why it matters so much to how a loan resolves.
• 4:53
  SPEAKER_00: Thanks for sticking around to the end, and thank you to my trusty Raba and the Fixed Notes team for putting together another episode.
• 5:00
  SPEAKER_00: If you want to learn more and hang out with the real not AI version of me, join our free school community at school.com slash fixed notes.
• 5:09
  SPEAKER_00: That's s k o l dot com slash f I X N O T E S.
• 5:15
  SPEAKER_00: In the meantime, we'll see you in the next episode.