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Have you ever felt discouraged in your effort to build a cash-flowing rental portfolio? Probably so—most of us have. Perhaps you feel like the cash flowing properties are just too hard to find; or maybe you feel that today’s prices and interest rates just don’t pencil out. If you’ve ever felt that way, this episode will give you a new way to look at things. In this episode, Jeff shares a powerful analogy that he developed to help his coaching clients. This analogy will help you reframe your approach to building a rental portfolio, and will give you new energy and encouragement as you do so.
Episode Transcript
On the topic of appraisals, I would bet that when you think about appraisals, you have some sort of an opinion some sort of a point of view, maybe it’s sort of a gash kind of a sense of dread in you. Or maybe it’s great. This is some, some data that I need or to make a good decision type of feeling. But the one thing most people feel though, is it an appraisal is just sort of unnecessary part of the process. But my question for you is, is it really a necessary part of the process? What if you could have an appraisal done optionally, based on your own deal and negotiation strategy, and that’s what we’re going to talk about in this episode. So Let’s cue up the theme song. We’ll jump right into that. Welcome to racking up rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting WE BUY HOUSES signs, we’re just looking for quote, motivated sellers to make lowball offers to. You see, we are people oriented deal makers, we sit down directly with sellers to work out Win Win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the thoughtful real estate entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio. Thank you for joining me for another episode of racking up rentals show notes for this episode can be found at thoughtful rt e.com/e 145. Please do us a HUGE favor by hitting the subscribe button and your podcast app. It really really helps fellow thoughtful real estate entrepreneurs to find this show. Honored with today’s episode. And as I mentioned in the intro, we’re going to talk about appraisals. And like I said, I think that we have a whole bunch of different thoughts that come up. Some may be good, some may be frustrating when we think about appraisals. So you know, when people think about appraisals, they might think oh, man, that’s it’s expensive. There’s 567 100 bucks, I’m not getting back, they might think Jesus, this really takes time. This is the whole lending process. Boy, this three, four weeks, five weeks for this appraisal really slows things down. You might be thinking cash, I’m kind of just sitting here on pins and needles waiting to get the result of this appraisal back because my loan hinges on this appraisal result. You know, we think geez, wait, I don’t know if I’d be doing this appraisal if the lender didn’t require it. Or we might be thinking, I play so much trust in this appraisal, whatever this appraisal says, this is going to determine whether I think I’m getting a good deal on buying this property or not. The funny thing is often when it supports what we think, or what we want it to support, we like it when it doesn’t support what we already think to be true. Or we want to be true. We don’t like it. Right? That makes sense. I mean, that’s kind of human nature. One person might look at appraisals and say, you know, it’s just a necessary evil a part of the lending process. And it just it is what it is it’s a necessary evil. But somebody else might look at an appraisal and say, Hey, this appraisal is what helps me make sure that I’m buying right, it’s another third party credibility piece, just like somebody might say, I really like debt service coverage ratio requirements, because they helped me make sure that I’m not borrowing too much money, well, someone might look at an appraisal like this as well. But one thing is for sure about an appraisal, it does not reflect your opportunity vision, it does not reflect your vision of what is possible with this property reflects what is there now. Now of course, there are certain types of appraisals, you can hire and give somebody plans and say, Please appraisers for what its gonna look like after it’s remodeled. But by and large, your vision of what’s possible in the deal. And your entrepreneurship that you bring to it is not reflected in an appraisal. Right. So how could that potentially help us? That’s a big part of what we’re talking about today. So the question is, what if an appraisal were optional. And in the case of seller financing, it is optional. When you’re going to a bank for a loan or just about any other entity that does lending on a somewhat regular basis and has sort of a program and a process and appraisal is something that’s going to be required, but when you’re working with a seller themselves, the seller is not going to recall wire, you to get an appraisal, the seller knows what they are selling you, they know that they feel that the loan amount is safe in relation to the collateral. That is their property. So there’s no request, there’s no requirement for an appraisal, in the case of a seller financing deal. But guess what, that doesn’t mean you couldn’t get one. That doesn’t mean that there might not be reasons why you might actually want to have that appraisal in your toolbox to see if and how you want to use it. And so that’s kind of what I want you to take away from this is the idea that in the seller financing situation, an appraisal is a tool. And it’s a tool you might choose to bring out of the toolbox and use, it’s a tool you might choose to leave in the toolbox. It’s a tool you might use to get out of the toolbox and then say, Nope, I’m putting this thing back in, I don’t want to use it. So let’s just talk about a couple of the ways you might think about this. And when you might want to get the tool out or not get the tool. So when might you opt to get an appraisal yourself? Well, so I’m in contract. Now I’m just about to close on a purchase. That is primarily seller financed, but there is a little bit of private money I’m bringing in on the deal myself as well. So no appraisal is required. My private lender certainly isn’t asking me for one, either. But I did the other day decide to pull the trigger and get an independent appraisal done. Quietly, I have a friend contact who is an independent appraiser, he was willing to appraise this as a single family home for about 400 bucks, which I felt like was an easy thing to say yes to given the potential negotiating power and might give me or just the additional data point that it gives me as a result. We’ll talk about that in just a moment. And I decided to go ahead with that now, Does anybody else know that I’m having an appraisal done? No, they really don’t they know that. I’m bringing several people through this property as I do my due diligence, my inspector, my contractor, my staff, property manager, all these things, and the appraiser is just another person who’s coming through, and they just quietly do their report, and they send it to me. So the question is, when might you opt for an appraisal? And the answer is simply, you might opt for an appraisal when it could help your cause? Well, what is your cause? I mean, you’re trying to do a few things, right? You’re trying to negotiate correctly with the seller. And you’re trying to solidify your plans for what you’re going to do with this property. And exactly when and in what sequence and at what prices are you going to execute whatever plan that is, right? It might be a flip, it might be that you’re going to just basically do almost nothing and put this thing back on the market, it might be that you’re going to improve it, it might be that you’re going to rent it, it might be that you’re going to place a tenant in there and refinance it six months later, it might be that you’re bringing private money in on it right now. And you want to be able to justify a certain value. But it can certainly help clearly in your negotiations depending on the result of the appraisal. So in this particular case, as I thought about it, and I weighed my options, I thought well, for about $400, I will either have a tool that I can use to negotiate maybe a price change in the context of everything else, I’m digging up in my due diligence.
Or if the appraisal comes back in a way that makes me very happy with the value, and I wouldn’t want to share that valuation with the seller because it’s my own due diligence, nobody even knows I’m doing it, then I might not bring it out at all. But at least the plus side there is I have a little bit more insight into what somebody else might value this at now. Or if I was to put this back on the market immediately, what type of price might I be able to sell it for today. And in the type of marketplace that we have right now where inventory is low. There’s not as many data points for comps, as maybe there would be in in a market where there were more transactions happening more frequently. This particular house that I am buying is just a little bit unique in the sense that it’s small. It’s in a great location but small it’s on a small lot and it’s charming and it’s got a lot of the qualities that people in this particular market tend to like in homes but there weren’t a lot of data points for me to be able to pull from this very clearly say Sure. Here’s 10 Dead Ringer type cops that just closed last week or are pending right now or active right now and to really hone in on value, so I wanted a little bit of additional insight myself, that would provide some clarity to me as to what my plan could be after closing on it. So here’s the point, though, when you opt for an appraisal yourself, you’re basically just deciding to spend a little bit more money to have a tool in your toolbox of potential negotiation, and data points for your own planning that you might use, or you might not use. But that’s okay. I would say in this case, this $400 appraisal was a very cheap, additional bit of data that should I decide I needed to use it would be there at the ready. And certainly the value of what better decisions I might make or better negotiations I might navigate would certainly be higher than the $400 that I paid for the appraisal. But let’s also talk about when you might not opt to get an appraisal, well, the first thing that might pop into your mind is you might say, well, I I’m going to opt to not get an appraisal most of the time, because I don’t want to spend the money on it. But that might be a good decision. Sometimes it also might be a little bit short sighted, because the $400 that I might spend on this appraisal is 400 real dollars that are going out whether I proceed to close on this property, or I don’t, however, the power of that negotiation that might come from the result of the appraisal is much greater than $400. Right? So my point to you there is if you’re feeling like you simply wouldn’t want to get an appraisal, because you don’t want to spend a few $100, I would encourage you to think more broadly and ask Is there some value that this appraisal could bring me in this negotiation or this planning that is greater than that? Because I think that decision alone, just to save a few 100 bucks is a little bit short sighted. But the real answer to the question of when might you not opt for an appraisal is really when you think there is absolutely no chance that having the appraisal as an optional tool in your toolbox could be useful. You know, if you look at it, and you say there is no way that an appraisal is going to help me in any fashion here, right, I’m buying a $500,000 property for 350,000. There’s no way that the appraisal is going to help me in my negotiations, there’s no way that the appraisal is going to help me in my planning process at all, then I think it’s absolutely okay for you to opt to not get an appraisal. But in most cases, there’s at least an outside chance that having this appraisal might be a useful tool to you in your negotiations. So I want to bring this back to one of the important points about appraisals and how everybody thinks of them a little bit differently. So let me ask you this question. rhetorically, of course. Since I don’t get to talk to you live right now. How do other people generally view appraisals? Most other people I would say, tend to perceive appraisals kind of as gold. This is the gospel truth. This appraiser came up and by golly, this exact number is fact it is truth. But we don’t as real estate entrepreneurs, especially thoughtful real estate entrepreneurs necessarily think that that’s true, we absolutely realize that an appraisal is not a reflection of what our own vision for the property is. And for the deal is. And that’s a huge part of everything we do is bringing our own vision to it. So the question becomes, though, if the other person like in this case, the seller views the appraisal as the gospel truth fact, how could you use that to your advantage? Well, if they feel like an appraisal is the gospel truth, and an absolute set and concrete type of fact, but you don’t necessarily that could really serve you well in your negotiations, right, because if you bring this back and you say, Look, this thing is going to appraise at $400,000. That means that anybody getting alone cannot have agreed to pay more than $400,000 Unless they are willing to cover a difference right now this could be very helpful to you. Because if you present something that the seller feels are absolute facts of truth and are undeniable they tend to be pretty open to making adjustments to your deal based on that. Now not everybody is so logical of course and some people might say sure, but in today’s market, you know people are paying over appraisal argue all the time, you have to know your audience. This is true in every episode of the show. And in every interaction, we have to know our audience and how they think. But my point is that there are many people who would place a fair amount of weight in an appraisal, and would say, Oh, wow, okay, well, that is a little bit different than we thought, another appraiser is going to come up with the same thing further down the road, if another buyers here, which by the way, may or may not be true, but that’s probably what they think. And that is helpful in your negotiations. So I just want you to think about the power of having an appraisal be an optional tool in your toolbox. So the first important point here that we can’t forget, is if you want appraisals, to be optional tools in your toolbox, you need to be doing seller financing deals, not searching for listed properties and going to banks, because in that case, and that path, the appraisal is not going to be an optional tool, it is just something that’s going to happen. Whether you like it or not, you’re going to pay for it, whether you like it or not, the result is going to have a huge impact on the whole deal on the loan, whether you like it or not. So another reason among many, that we really love seller financing deals. And just remember that when you are evaluating how you’re going to negotiate with the seller, how you’re going to play the chess game with them to navigate this conversation to the destination that you want to need it to go, while still giving them a great experience and the exact outcome that they want. Also, remember to consider that potentially, an appraisal could possibly help your cause and at least knowing that the appraisal is there, whether you choose to pull it out of the toolbox and use it or not, at least it will be there at your option. And with that, we wrap up another episode of racking up rental. So again, shownotes for this one, can be found at thoughtful rt e.com/e 145. Please do us a big favor by hitting the subscribe button and your podcast app and rating and reviewing the show. I so appreciate that I see every rating and review and I just appreciate you taking the time to do that. It really does help me and it helps the show. So thank you for that. Did you know that we have a Facebook group for thoughtful real estate entrepreneurs as well? It’s true. It’s called the rental portfolio wealth builders. We would love to have you over there you could just type in group dot thoughtful ar e.com into your browser and the magic of the internet will take you right to that page. If you liked this episode, please take a screenshot of it on your phone and post that screenshot to Instagram and tag us. In your post. We are at thoughtful real estate all spelled out. I’ll see you the next episode. Until then. This is Jeff from the thoughtful real estate entrepreneur signing off.
Thanks for listening to racking up rentals where we build long term wealth by being when when dealmakers remember solve the person to unlock the deal, and solve the financing to unlock the profits.
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