Help with SFR rental property

[Tater Salad]

Hi, my name is Carole Lotz and I've been lurking for a long time but never participated. I hope someone is willing to help me with a basic question on SFR rentals.
I'm somewhat of a newby and find myself with a competency issue.

How do you determine the GRM when you have no sales of rental SFR's? I have done 1-4fam, but have always had sales with rents. My first thought is to use the market rents and apply them to sales that were sold as (most likely) owner occupied? It doesn't sound reasonable to me as buyer motivation is not the same.

The area has many SFR rentals, but none appear to have been occupied as rentals at time of sale. I feel like I should know this, but all the example text material from my classes use actual rents, and never address the "what if". Does this mean there isn't enough data?

Thanks for any and all replies

 

[Don Clark]

8)

Carole:

Find SFR rentals that are as much like the subject as possible. Then find SFR sales that are as much like the subject as possible.After simple adjustments to the rentals and the sales just like you do in avery appraisal, then assign the rental amounts of the adjusted rental comparables to the adjusted sales by "Proxy". This is a valid technique where there are no rentals that have sold. Then fully explain what you have done. You can set all this up on a grid to demonstrate what you have done. Your clients will appreciate the extra work, and you will look very good. This is in essence a form of hypothetical with the exception that you have a known rental value, you just don't know what that rental would sell for. Again, it is a GRM by Proxy. But.........explain, explain than splains it again. BTW, I was taught this technique a long time ago so it is not an original idea.

Don

 

[airphoto]

Also, Carol ..

Go to your local paper (including back issues) and see if there are some single-family rentals being offered .. enter and adjust just as Don's suggested ..

 

[Wally Jones]

Carole,

First, welcome to the Forum! Since you've been lurking for awhile, you already know there is a wealth of experience available here. Hopefully, those with more experience than I have will provide you some help on your question.

While you're waiting for the good answers, though, a couple of thoughts. You say you have sales of rentals but that they weren't occupied as rentals at the time of the sale. If these are current sales, perhaps you could develop a GRM from them and see how it relates to the indicated values developed from your other approaches. These sales may be useable since they're all that you have, just explain the situation in detail in your report. Also, go back in time to see if you can identify other rental sales and do the same thing. Is the outcome similar or significantly different? If enough current data isn't available to obtain what you consider a reliable GRM, explain that in your report. Maybe provide an addendum showing your research, the results and why you considered this approach to be not reliable.

Is there a more experienced appraiser you could consult with on this issue? (I'm thinking, NOT, since you're here! ) If all assignments were easy, it wouldn't be any fun! 8)

Good luck.

 

[jtrotta]

If you can gather enough information from multi-family rents; and then gather information on single family rents; you should be able to note a trend for both. If and when you spend the time gathering all of this data, store it in a safe place for future reference and adjustments. Doing a search monthly; quaterly; or semi annually, will allow for adjustments up & down in the cycle.

By doing this work, you will have a sound basis to specialize in that work area; you may become relied upon for data (good for bartering or cash).

Good Luck

8)

 

[rtubbs]

Carole, I maintain that, just because you may be appraising a SFR as an investment property, you do not necessarily have to use the income approach in the appraisal. I believe that if you develop a GRM by some other means than with sales and rents, you're just playing games.

For example, if you take a sale that was not rented and say that it would have rented for $x and develop a GRM on that basis; or if you take a rented property that has not sold and say that it would have sold for $y and develop a GRM on that basis. To me, that is misleading and you would have a GRM that is probably meaningless.

There is nothing that says that you have to develop the income approach for an investment property. If you think it is applicable, say you considered it. You have the market rent which you can show on the URAR. Just explain that sufficient data was not available to develop the income approach to value.

I've never been questioned for doing it this way.

 

[Larry Lyke]

Ron --

There's a softer way to peddle the GRM issue which UWs love, even on SF residential investment houses:

--Gather the rental info from Duplex through Fourplexes (i.e., small income properties, which are most akin to subject) and explain in writing how this rental information was arrived at.

--Gather the SF rental information even if it is very meager (newspaper, etc.).

--Discuss the two in a brief paragraph. Then in the last sentence indicate that while this may be an approximate indicator, it is by no means a proof-positive marker. Then in the Reconciliation, say something akin to "GRM spread appears to be ______." [Don't be slick, like backing into the information -- that's phony and would be apparent.'

Like airphoto said above, the Sunday paper is always a great source of information. I save the rental real estate section every Sunday for 6 weeks on my bookshef by putting the new one on top and throwing out the oldest one. It's a self-renewing file that requires minimal attention.

I don't save the whole real estate section because it's huge and self-renewing every week. I pitch the ads every week, BUT --

While I'm at it [Before I say this, I have to say that I scored 41 on Greg's new personality poll]:

I save the daily and Saturday and Sunday newspaper for 30 days by putting the new one in front and throwing away the last one regularly. Makes a fabulous library of local facts. And I freely annotate the daily newspaper on top of pg 1 of each section to references inside. All it takes to start this file is saving the cardboard box your latest case of booze came in. It's the right size in every way. Actually, being a little more anal retentive than I've previously disclosed, I have hardboard dividers the right shape and size to separate the weeks in my box. And by clipping the Sunday ad pages altogether with a binder clip, you only have to actually dig through the file to find Tues, Wed, Thurs and Fri of the previous week: Because Saturday is behind the partition, Sunday is in front of the partition and Monday is in front of the binder-clipped ads!!

Ready for this? I also use the file box to store the daily unread newspaper. And just in case I don't get to read it all, which is very often, the newspaper is already filed where it should be.

 

[Tater Salad]

My lurking experience told me that I would get great help here. Thank you Don, Airphoto, Wally, Jtrotta, Rtubbs, and Larry. I believe that I will incorporate all of the suggestions, including Ron's(by saying that the arrived GRM is considered but not put a lot of weight on it).

Wally, I don't have a "super" anymore. I worked at a place that was fast and cheap. I learned from all of you here that I was in a situation that needed to be rectified. So I fired him (no hard feelings) and now am on my own. I want to become a respected part of the profession.

Don, I have an NAIFA application on my desk and will be joining soon. I have been lurking at their chat sight as well and feel that I have a lot to gain by joining.

Thank you all again

 

[Pamela Crowley (Florida)]

calotz,

Good for you! It's not easy to start in one of those 'shops' that not only don't teach you how to appraise but sometimes teach things that you really shouldn't do. The fact that you are here, reading and now asking questions, tells me you are going to be a fine appraiser. Keep up the good work! Congratulations on getting out and doing the right thing!

 

[Tater Salad]

Thanks Pam! All encouragement welcome here.