Reconciliation of Approaches

[CANative]

I know, and the backed into GRM is part of that action?

You guys better stay appraisers because it appears you haven't learned how to make money in Real Estate.

Your investor is buying cash flow and remainder value. Exactly how is that similar to the owner occupant who is buying some utility with a huge pinch of emotion? What do you think spurred all the condo conversions. Change from investor owner to owner occupant was the main value driver. A rental apt. may have been worth X, owner occupant condo worth XX.

The "spur" was an unreasonable expectation of reversion.

 

[Pittsburgh Pete]

Maybe wearing multiple hats gives you a headache. Based on prior business related posts of yours, I don't think you have that tight of a grip on the pulse of the business.

And your grasp of logic is tenuous at best! Appraisal theory and methodology have nothing at all to do with business decisions. You should stick with what you know if, in fact, you do know anything.

 

[The Warrior Monk]

FWIW, the owner-occupied/investor issue became extremely evident very quickly when I first started appraising commercial property.

One of the more interesting commercial projects I did in the past year was a textbook example of this. Two properties in a core village business district were located on the same street, a few buildings apart. One was a single-unit property, the type which is owner occupied. The other was build as a small, multi-tenanted shopping mall, and had a much larger GBA. The market values of these properties turned out to be very similar, due entirely to the different forces that drive their value.

 

[DTB]

And your grasp of logic is tenuous at best! Appraisal theory and methodology have nothing at all to do with business decisions. You should stick with what you know if, in fact, you do know anything.

I know enough to buy positive income streams. Whenever you are done dabbling around the fringes of real estate and want become fully immersed let me know.

You only see things from your perspective, you need to broaden your circle of colleagues.

I know a few guys with broken English, a pencil and the back of an envelope that could teach you a thing or three. You don't even know what you don't know.

Zaionarra Pete.

 

[Pittsburgh Pete]

I know enough to buy positive income streams. Whenever you are done dabbling around the fringes of real estate and want become fully immersed let me know.

You only see things from your perspective, you need to broaden your circle of colleagues.

I know a few guys with broken English, a pencil and the back of an envelope that could teach you a thing or three. You don't even know what you don't know.

Zaionarra Pete.

Stick with your investing as you seem to have only a marginal grasp on the appraisal field. I suspect I've forgotten more about appraising than you'll ever know. Stick with your pencil and envelope and leave appraising to those that know what they are doing.

 

[DTB]

Stick with your investing as you seem to have only a marginal grasp on the appraisal field. I suspect I've forgotten more about appraising than you'll ever know. Stick with your pencil and envelope and leave appraising to those that know what they are doing.

Sure thing Pete. :laugh:

 

[Terrel L. Shields]

Well...we were doing pretty good until it degenerated into a whizzing contest... pendings or sold...I have both. The future (leased or not) isn't relevant. The GRM is still functional. You should use the MARKET rents, not the ECONOMIC rents anyway. The ownership does not dictate the value. HO or Investor, they compete in the same markets.

that it makes the income approach less of an "income" approach and more a variant of the comparison approach.

One can only use the data that actually exists. If an income approach is required, using substitutes to derive GRMs is one way of doing it....

All 3 approaches are interdependent and all three rely upon SUBSTITUTION...one does not dominate the other.
The subject might not be rented...might not be for sale...might not be new construction...we substitute the appropriate items to arrive at each. You cannot derive any of the three approaches without cost, income, and sales data. You need sales to determine depreciation and preferrably for land value (CA). You need sales to estimate the GRM (IA). You need sales to make adjustments in the SA.

I find that rented homes are a lot like land sales - there are far more of them available in most areas than one would think by just reading most residential appraisal reports

No quarrel from here on that statement... & you won't find them if you don't look.

But don't all three approaches to value employ some variant of comparison?

of course... but the key is substitution... it is what locks them altogether.

"The principle of substitution is equally applicable to properties such as houses that are purchased for their amenity-producing attributes and properties purchased for their income-producing capabiities....The principle of substitution is fundamental to all three traditional approaches to value - cost, sales comparision, and income capitalization." - pg 39, 10th Ed The Appraisal of Real Estate.

 

[DTB]

Well...we were doing pretty good until it degenerated into a whizzing contest... pendings or sold...I have both. The future (leased or not) isn't relevant. It is absolutely relevant. If you do not have an investor purchase expressly for purpose of rental you have no credible data to develop an income approach. Perhaps one thinks that "accidental" landlords renting their house for market rents can be transferred to a market sale and voila a GRM. I know they're teaching and it's bunk.

The GRM is still functional. You should use the MARKET rents, not the ECONOMIC rents anyway. The ownership does not dictate the value. HO or Investor, they compete in the same markets. HO or Investors do NOT necessarily compete in the same market and certainly not in the same manner nor with the same sophistication.

I wonder why areas with 2-4 units that are primarily owner occupied sell for more than similar units in rental dominated areas?

Unless you have sales of income properties (including SFRs) to investors who keep the same usage, you are wishing and hoping your numbers are factual.

Let's put it this way, I don't buy rentals from owner occupants w/o them being very motivated. And when I sell my rentals, they are to owner occupants. I am not alone, check around. I think it may have been the 2nd thing taught in CCIM courses. The first thing was more money is better than less and getting it sooner is better than later!

 

[Mr Rex]

If there is one thing I'm pretty sure of, all generalizations are wrong.

 

[The Warrior Monk]

The future (leased or not) isn't relevant.

I certainly can be, because it is indicative of reason the property was purchased. It should be no surprise that in some markets properties go from tenant-occupied to owner-occupied upon transfer. In these markets, the rent can't cover the carrying costs, so no sane individual is going to purchase a property just to rent it out to someone else and have it burn a hole in their pocket.

An income approach could still be developed, but it is what it is. It's simply a concocted mathematical method, disconnected from the reality of why the property was purchased.