Final Reconciliation - Triplex

[Doug Wegener]

Was the Income based on estimated market rents or confirmed truly competitive/comparable rentals?

Both

 

[Doug Wegener]

Both

I dont know why I said that. It was based on confirmed truly competitive/comparable rentals

 

[J Grant]

If investors are buying for income, why would they PAY more for it than similar properties yielding similar income sold for ? ( the comps). Unless the listing inventory has jumped in price, is a shortage or subject income is higher for a viable reason (larger, better location ) Unless there is a viable reason for a subject rent to be higher, if subject is similar to the comps we base our income on the market rents of the comps. If the comps yielding similar income sold for 205k and below, why would an investor pay 209k unless inventory or market conditions have changed

Was your income approach higher because you based it on a rent of subject rather than market rents of the comps?

Appraisal is a matter of comparisons. We have three approaches and we compare one to the other, but basically in a MV appraisal the core question is what is the most probable price would a buyer pay for subject...and the theory is if the typically motivated buyer could buy an equivalent substitute for less, why would they pay more.

Which always brings us back to listings and market conditions...are there avail listings in same price rang ) as the comps, or are listings now higher or lower, and is there an inventory shortage or ample inventory.

When prices jump in listings, one can reconcile higher since there are few reasonable price substitutes avail. Keep in mind when prices start rising too high the profitability from rents erode, and smart investors wait the market cycle out. Those who buy in a high price market can over spend for properties and end up were the rents don't cover costs.

Rents tend to rise more slowly than prices as its unusual for wages to make a big increase, and folks renting in triplexes or duplexes for the most part rely on wages.

 

[Terrel L. Shields]

If the comps yielding similar income sold for 205k and below, why would an investor pay 209k unless inventory or market conditions have changed

Investors, particularly local investors, often seek properties that are easy to manage within their own portfolio. Thus, if they own three duplexes in Funky Acres, and another is available for $209,000 but they can buy a similar duplex 10 miles away in Rockabilly Flats for $205k, well...I bet they pick the area that they already own. I know one investor who also had a chance to buy the vacant lot next to the unit he owned. He bought it to prevent anyone from building there and providing an extra amenities that his renters could enjoy a little extra space.
Just driving the extra miles to service a more distant property is a factor that investors look to. Another factor is that there are a few people out there who cater to a certain ethnicity or community which has certain preferences. We have towns where builders and investors tend to build within walking distance of a poultry processing plant. Thus they rent to many of the workers in those plants. If you have a family with one person working the plant and another working in the building trades, the one working in the plant can walk to work and won't need two cars. That is a huge savings in a year. I knew a woman who had several rentals and worked for the chicken plant. Most of her renters were co-workers. Everyone in the plant knew when she had a vacancy and she rarely was without a renter over 30 days.

 

[J Grant]

A community 10 miles away or inferior/superior either is not a comp, or if using comps 10 miles away and the communities differ , then explain and adjust. Each appraisal has to make sense for its area and typically motivated buyer...which is why the theoretical examples on the board are fun to a point and then frustrating because they cant' replicate a "real " appraisal in all its nuances.

 

[CANative]

A community 10 miles away or inferior/superior either is not a comp, or if using comps 10 miles away and the communities differ , then explain and adjust.

Well, which is it?

 

[J Grant]

That can be a riddle for you ....

 

[HF Mudd]

Of course it's purchased on the basis of income. And isn't that fact reflected most directly in the comparable sales in the Sales Comparison Approach? Weren't the comparables purchased for their income generating capabilities?

It all boils down to the "quality" of the data used in each approach. Rely on that which is most reliable.

My vote for the most reasonable post in this thread.

 

[CANative]

My old dad used to type this in his reconciliation comments:

"Most weight given to the sales comparison approach as it is a direct reflection of market activity."

 

[J Grant]

Of course it's purchased on the basis of income. And isn't that fact reflected most directly in the comparable sales in the Sales Comparison Approach? Weren't the comparables purchased for their income generating capabilities?

Pete said what I was trying to convey in my posts, but he stated it more succinctly and more eloquently.