I need some advice!

[DaveJody]

Hi my husband and I are new REIN members buying our 2nd property. This property had a positive cash flow of 303. per month (with a 40 year amort). The property was appraised stating that the remaining life is only 35 years. The lender therefore can only give a 30 year amort. decreasing the cash flow to about 100. per month or 0 without garage. I was very conservative in my cash flow numbers using a 10% property management (even though we self manage). We have paid for the property inspection and the appraisal. My husband and I had said when we bought the 1st property that we want to be conservative and only purchase if the cash flow is positive before the garage rental. Do we still do the deal? I`m also worried about resale, would this be a barrier to new buyers in 5 years. I look forward to some advise on this matter. We have changed the condition date to Friday to give us time to ponder this.

Please Help!

 

[MonteDobson]

Where is the property located??

 

[HeatherBrandt]

Is there something specific that is decreasing the life of the property? Can it be fixed before you resell it? We assumed a house that only had a 15 year mortgage on it based on the appraisal at the time. We did some renovations and the next appraisal increased the effective so it qualified for a 25 year mortgage.

Heather

 

[DaveJody]

QUOTE (C2Ventures @ Apr 3 2008, 05:32 PM) Where is the property located??

The Property is in Edmonton South

 

[DaveJody]

QUOTE (HeatherBrandt @ Apr 3 2008, 06:03 PM) Is there something specific that is decreasing the life of the property? Can it be fixed before you resell it? We assumed a house that only had a 15 year mortgage on it based on the appraisal at the time. We did some renovations and the next appraisal increased the effective so it qualified for a 25 year mortgage.

Heather

The house has been recently renovated. Still could use a few touch up (paint, furnace and perhaps new carpets) other than that it is pretty good. Not sure why the appraiser put 35 yrs remaining life. The property inspection was really good.

 

[mortgageman]

It all depends on how comfortable you feel with a break even property. If it`s going to cause stress and anxiety for you and your husband don`t buy it.
If the higher monthly payments are going to greatly hinder your ability to qualify for your next property, don`t buy it.
How about paying a different company to do a second appraisal. If it confirms that there`s only 35 years left you can walk away from the property and you`ve only paid another $200. If it shows a longer life expectancy you can buy it, go with the shorter amortization for now and refinance in a couple of years, especially if you plan on making improvements to the property.
Good luck

 

[invst4profit]

Based on what you have said and the fact that you yourself are questioning the deal if it were me
I would pass. There are lots more deals out there and passing on one will not change your life but
buying one you are uncertain of could.
The cash flow seemes a little tight to me but not knowing the actual numbers of the deal makes it difficult to accuratly evaluate.

 

[PeterKinchMortgageTeam]

QUOTE (invst4profit @ Apr 4 2008, 08:44 AM) Based on what you have said and the fact that you yourself are questioning the deal if it were me
I would pass. There are lots more deals out there and passing on one will not change your life but
buying one you are uncertain of could.
The cash flow seemes a little tight to me but not knowing the actual numbers of the deal makes it difficult to accuratly evaluate.

Talk to the appraiser and find out what is reducing the economic life. Different appraisers have different designations that dictate the calculation on economic life. If the renovations are not just cosmetic (ie it has new kitchens, and bathrooms) and a new furnace, they usually have a longer life. Might be worth it to try another appraiser.......

 

[gullonsd]

Try asking for a review and change. It appears that some appraisal forms automatically default to 30 or 35 years. Unfortunately, some less experienced appraisers are only qualifed to enter the data but not to make judgement calls or changes.

A similar incident happened to me on a 4 plex. In that instance, I went back to the appraiser and asked if the life span of the building really was 30 years especially considering the new kitchens, baths and flooring? Was it possible to change it if it were more and could he please review his assessment?

He replied that yes it had more years, he could review the appraisal but he did not have the authority to make any changes to the defaults. He would consult a more senior appraiser in the company about making alterations etc.

Result - 35 years and 30 year Amortization. 1 very

Refinancer!

 

[RebeccaBryan]

If you think the appraiser is "out to lunch" then get a second appraisal done, without question. If I don`t like an appraisal, I always get a second one, and I always let the second appraiser know why I didn`t like the first appraisal, and I`ve always been happy with the second outcome. If you are certain that your opinion is right and the appraisal just doesn`t make sense, then get the second appraisal. There can be "HUGE" differences from one appraisal to the next.

Don`t look at it as if it`s a "road block", but a extra step you didn`t anticipate having to do, take the extra step and move forward. As my Dad would say, "Roll with the punches".

 

[Thomas Beyer]

QUOTE (RebeccaBryan @ Apr 5 2008, 07:02 AM)
If you think the appraiser is "out to lunch" then get a second appraisal done, without question. If I don't like an appraisal, I always get a second one, and I always let the second appraiser know why I didn't like the first appraisal, and I've always been happy with the second outcome. If you are certain that your opinion is right and the appraisal just doesn't make sense, then get the second appraisal. There can be "HUGE" differences from one appraisal to the next.



Don't look at it as if it's a "road block", but a extra step you didn't anticipate having to do, take the extra step and move forward. As my Dad would say, "Roll with the punches".




right .. get a 2nd opinion !



Also: 30 yr amortization vs. 40 is just money in a different bucket ! The amortization it is in your "equity" bucket as opposed to cash in your savings account ! makes no difference really regarding viability of the project !

 

[DarrylKelly]

QUOTE (DaveJody @ Apr 3 2008, 05:28 PM) Hi my husband and I are new REIN members buying our 2nd property. This property had a positive cash flow of 303. per month (with a 40 year amort). The property was appraised stating that the remaining life is only 35 years. The lender therefore can only give a 30 year amort. decreasing the cash flow to about 100. per month or 0 without garage. I was very conservative in my cash flow numbers using a 10% property management (even though we self manage). We have paid for the property inspection and the appraisal. My husband and I had said when we bought the 1st property that we want to be conservative and only purchase if the cash flow is positive before the garage rental. Do we still do the deal? I`m also worried about resale, would this be a barrier to new buyers in 5 years. I look forward to some advise on this matter. We have changed the condition date to Friday to give us time to ponder this.

Please Help!
Economic Life = period of time from construction new that an improvement will be profitably utilized for its originally intended purpose.
(new homes are typically considered to have an economic life of 55 yrs - there are obviously many homes on the market older than that)

Effective Age = observed or maintained age. Determined by the experienced eye and very subjective or from market data using the abstraction process.
(subjective opinion of the age of an improvement based on appearance. Focused on paint, flooring, counter tops, cabinets, furnace, hot water heater, etc. Assumption that items start to get replaced after ~ 10 years. Many older homes wind up with an effective age of 15-20 yrs)

Remaining Economic Life = Economic life Less the effective age

Keep in mind that 40 yr amort. products are fairly new in the market place...the appraiser may not understand the implication. I agree with the comments made by others.
1. talk to your appraiser and make sure they understand you want a 40 yr amort.
2. Try a second appraisal if you have to.
Sounds like the property has had recent renovations (e.g. improvements), so you may be able to get the effective age adjusted.

I bought a 46 yr old fixer upper with a lot of deferred maintenance and badly in need of a reno...with a 40 yr amort. Keep trying.

Darryl