Attention Real Estate Investment Newbies: How To Appraise Properties…Not

Posted @ 10:10 pm - Filed under Real Estate Investing, Investment Lessons, BawldGuy Axiom, RE Investment Practice

Guy I’ve been helpin’ on the side with investment advice lives in Iowa. Pretty smart guy, and frankly, if my opinion was asked, I’d say he had more ah, testosterone than is safe. But that’s another post altogether. Anywho, he’s not only smart, but a doer with a capital D. Tell him what to do and how to do it, and Boom! he’s emailin’ me with a question about what to tackle next.

BawldGuy Axiom: Those who set out to try are doomed to learn from those who set out to do. Doing is what results are all about. Trying is how we begin explanations for failure.

The latest bump in the road for ‘Jim’ is figuring out how to reliably value properties in which he has some interest. Though I’m still not positive about what he was looking at during his research, I can say it did bring up a common misconception.

Going to the local tax assessor and viewing property tax appraisals in order to value is maybe one of the fastest ways to find yourself in the black abyss of ‘What happened?’

In California for example, the only kinda sorta reliable assessor valuation is found the day after a new sale is recorded — if that sale was recorded at full value. Back in ‘78 we amended the state constitution as it relates to real estate taxes. (Proposition 13) Very much oversimplified, it limits taxes to 1% of the purchase price, which of course has been perverted somewhat over time to include various exceptions. In San Diego homes and small investment props generally land in the range of 1.25-1.6%. Also, and this is best part, annual tax raises cannot exceed 2%. Pretty cool, eh?

So, if you’re appraising a small income property, say a duplex, and look at a few others close by, here’s what you’ll most likely see. Tax appraisals all over the place based on the price they paid long ago, plus 2% a year. This assumes they didn’t hoodwink the assessor concerning purchase price. Happens more than you think, Grasshopper.

This has been our experience everywhere we’ve been, regardless. Their methods may vary from state to state, but the results remain uniformly worthless to the pro. The values shown by tax assessors are ridiculous on a good day, and beyond stoopid most days. That duplex isn’t worth what you think it is. Don’t impute any credibility into an assessor’s valuation of property, especially if you’re trying to figure out how much you should pay for it. That approach will either get you nowhere fast or somewhere you never meant to be at a price too silly, or worse, embarrassing to mention in public.

And no, I haven’t spoken yet about how to assign reliably credible value to property you’re lookin’ to buy. We’ll do that real soon. We have talked about how not to appraise real estate investment property, or any real estate for that matter.

Think folks haven’t invested in property they ‘researched’ only to find out too late they paid way too much? ‘Course there’s the other side of that same coin. How’d you like to find out you left thousands on the table ‘cuz you sold your property way under value — based on the local tax assessor’s valuation? I wonder which guy would feel worse?

Don’t answer, it’s a trick question.

Call or email me and learn an answer or six to questions you didn’t know to ask. Come on, I need a fix.
Click here and miraculously my Contact BawldGuy page will appear. I’m confident you’ll know what to do next.

This entry was posted on Thursday, June 26th, 2008 at 10:10 pm and is filed under Real Estate Investing, Investment Lessons, BawldGuy Axiom, RE Investment Practice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.