Income Producing Properties on the 2055

[Bobby Bucks]

Things used to be so much simpler. Multi-family property......put it on the 1025 form with the O
& I................. single family property (barring the oddball FHA duplex) put it on the 1004 and
give them a 1007 and O & I statement. Lately I’m getting more requests for the 2055 interior for
income producing single families......of course for the 2 bedroom wooden boxes I always insist on
including rental comps and O & I statement regardless of what they request and charge
accordingly...I've lost some orders for not bening I might add....I’m going to have it in my work file anyway........now to my question ...........how
comfortable is everyone else with using a 2055 for a single family income producing property and
ignoring the income approach because that’s what the client requests?

 

[rtubbs]

Bobby, I would feel comfortable in preparing the appraisal on a 2055 if my answer to the following questions was no:

Would I typically use the income approach in the same neighborhood on a similar property that was not income producing?

I've seen too many instances where a parent was buying (or signing for) a property for a child and you have to treat it as investment property with the OIS and 1007. To me, that's an exercise in futility.

 

[Farm Gal]

Bobby:

I have no problem providing the client with what (and only what) they ask for... IF you think you CAN reasonably ignore errrr make that "Consider but not develop the income approach in your SUMMARY report". You are in MY opinion fine doing the entire "complete" appraisal on the 2055 and mentioning that you considered but did not develop the income approach, even if it is applicable... is it neccesary?

Let's put it another way:

IF you as an investor see properties "renting" for more than they are selling for which approach are you going to use in determining what you are going to pay for a property under consideration for acquisition? That amount which you think it is 'worth' due to it's complete (inclusive of tax advantages) rental prospects/income approach, OR that which other folks are paying for that particular property?

Never met a 'knowlegable' landlord yet who paid what a property was 'really' worth in terms of income stream as opposed to 'as little as the market would accept' for an income property!

In those few markets where investors ARE paying a premium for home acquisition you had darn well better develop and report... OR where the vast majority of homes ARE rentals... but even then: which approach - on residential properties and assuming adequate sales - do we normally wind give the most weight? Even in college towns with steady streams of renters...!

I am not saying that the other income approach data SHOULD not be developed, nor am I saying that it should not be seriously considered(!) but 'must' it be fully developed if you have adequate sales by which to develop a credible and more probable approach to value than using rents??

I mean that if a LO wants it to do the rest of the number crunching OR for internal rules processing NEEDS the data, then great and they can pay for it!!! But in this day of numerous alternatives to the old traditional financing methods IS it necessary?

I understand that the income apporoach should be considered as suportive (or not) of the market approach even in predominantly owner occupied areas, but lets face it folks the development of a credible GRM in 'not normally rented' areas is suspect, at best! And even in heavily rented areas does not neccesarily lead to the best indicator of value!

And finally: if and when a property is returned to the market... what determines the actual sale price, some pie in the sky number crunching or 'what other folks are paying for like properties....'

FRankly in most cases the only use I see for a fully developed income approach is one of three

1. The client is willing to pay for it. or
2. There ARE no similar sales and the income approach becomes the 'only' reliable approach.
3. I want to know if this is a good area in which to purchase rentals for my own purposes!

Jus my opinion.

( I am now offically ducking from the barrage of abuse I expect to be rained on my head.)

 

[Bobby Bucks]

RTubbs I feel that way too.......if SFs in the neighborhood are not typically purchased as investment
properties, why do they need all the income data?....I’ve done far too many where that was the
case.
Lee Ann ....”consider and not develop”......I always use that line if the report is a rush....never
failed me yet Another note.....occasionally I get a SF primary in a neighborhood full of
rentals.....in those cases I include the income approach, no 1007 or O & I and then some anal
underwriter will call me up and hassle me like it’s the Sears Tower........thanks for the replies
folks.....It’s much appreciated and I don’t mean to appear ungrateful, but I was really hoping to
get some feedback from some of the experienced franchisees out there in appraiser land.

 

[walt kirk]

If the client wants the report on a paper plate I will provide it, however I charge the same amount as I would for the proper format and of course my file has all of the information required. I once asked an underwriter why they order these short forms when they cost the same as a proper format. The underwriter told me that they like the short forms because there is less to read! That suprised me because I didn't know that underwriters could read.

 

[Restrain]

If the client specifically requests that it be done this way, it becomes a special provision requiring departure, so it becomes a limited with departure invoked. So state, and CYA.

Roger

 

[Mike Garrett RAA]

Ever notice it isn't the L/O who says do the income and expense analysis???? Seems like everytime they say, ohhhh we don't need that.....about a week later here comes the call saying we need a form thus and so and thus and so. Most of the time they don't even know what the numbers mean.