New Appraisal Guidelines Could Harm Industry

Freddie Mac has instituted new guidelines in the appraisal order process, to be put into effect in September 2008.   These new guidelines will prevent Mortgage Companies from ordering their own appraisals. The excessive manipulation of appraisal valuations from Loan Officers have created a distrust in the industry. Appraisers are pulled in every direction from a Loan Officers and Lenders, many times coercing the appraiser to “meet value” or make alterations sometimes not even in the appraisers field of expertise. Although there is great value in insuring an unbiased opinion in evaluations, I am concerned about the selection process by third parties.

AMCs or Appraisal Management Companies contract appraisers to complete their opinions of value at a sometimes much lower rate than they would normally see if dealing directly with the lender.  This “middle man” scenario will almost certainly cause appraisers to have to do more work for less money. As you can expect, many experienced, honest,  and qualified appraisers who charge a premium for their services will find that they can no longer compete financially with the newly licensed, inexperienced appraisers who are used to performing appraisals for lower rates.  The most frightening consequence of these new guidelines may be that the appraisal industry itself will suffer a “dumbing down” at precisely the time when it needs it’s most talented representatives.

Marc Tesla

Interviewing Your Real Estate Professional?

When we started our investment consulting, our forum of “Back to the Basics” involved the definition of a “Good Investment” and how the last decade scarred this business. For too long, people have diverted from in-depth planning in Real Estate. The last decade afforded too many novices the ability to get rich overnight, without any true competent knowledge or skill. Why does this matter? Because people watched this, talked about it, felt it and they knew they were “missing out”. They had to get on this train before it was too late.

There was only one strategy, one part of the plan after investing $500 in a book set from a real estate “guru”…..to buy real estate. Everyone sold a niche, a training regimen, a new way to operate. Nobody sold a true business plan. Let’s face it; this is a business and your real estate portfolio will only be as successful as you make it.

People go to college for years just to learn and graduate in a trade that often times won’t even become their career. So why do people invest in Real Estate and think it will be Easy? It isn’t easy, but it is simple. Simple, because by building a team of “true” professionals to advise you, you can avoid costly mistakes so prevalent in our market today. A team of professionals can cover every base you need. The real investment is in those relationships, how well you established them and why you chose them. If you chose them because they were a friend, a friend of a friend or someone sent some nice shiny postcard in the mail, you picked up the phone to call them and expected that would suffice; then you obviously didn’t really have a plan.

Would you hire an employee without truly finding out if they were the best person for the job or at least the most suitable for your cost? Would you go to your neighbor for medical advice, who decided to become a doctor overnight with wonderful intentions, a bright smile and no degree?

I don’t think that Length of Time in the business carries as much weight as is placed by people. Length of time can certainly be a great factor, but if these so called “experts” have been giving the wrong advice for years or have been doing the wrong thing, then their efforts most likely caused harm and misguidance to those seeking the fundamentals in real estate investing. I don’t think you can judge their nice credentials on the bottom of their business card or how friendly they greet you or how nice their website is. Credentials can show you they have invested their time to advance and have gained wisdom in business, which is important, but not paramount. A friendly person that has won you over isn’t the deciding factor, but certainly should be weighed as that same personality may make relationships that will benefit you, as a customer. Their fantastic website may bring them a tremendous amount of leads, including possibly you and that is commendable, but will it help you make the right investment?

In Real Estate as in any other field, some people just “get it” and some people don’t. Knowledge is very important and action is the difference. People need to understand the fundamentals of investment. The why, what, where and when? These days investing requires ten times the amount of credulity and calculation. So who is doing that for you? Who do you have that understands Real Estate Investing? Who is going to make sure you make the right investment?

In your investment relationships there has always been one person who stands out. One person who orchestrates all of the team and makes sure the message is in sync, one person who understands all aspects of investing and each profession that is part of the team. If this isn’t you, than whom do you have?

Right now, investment strategists, consultants and agents should be dissecting each investment and evaluating a financial plan based on your specific income, tax position, liquidity, risk tolerance and retirement. Each property should be required to meet our 15 Point In-Depth Investment Analysis. If your representation isn’t examining your future in every detail and calculation, then you need to consider a change.

By: Marc Tesla

 

  

 

 

 

Commercial Property Investment in ‘08

After record levels of growth, commercial real estate is facing a more challenging economic and investment environment than it has for several years. Despite the threat of recession, the U.S. economy can be resilient. Demographics are strong with solid population growth, and overall U.S. households are the wealthiest they have been in the country’s history, but job growth is a concern. The problems are America’s habit to “overspend”. Capital and financial markets are volatile, lower interest rates favors commercial investing.  

The lending crisis will gradually affect debt capital, which will force stricter lending guidelines which can effect resales. The second-tier properties may see larger cap rates as tenants re-evaluate their operating costs. The rental growth rate should be expected to decelerate and flatten out in some areas. Investors should take caution in highly leveraged purchases. Retail vacancy is up, with slower employment growth, rents should decrease in many areas.

Apartment complexes may see drastic changes as distressed condominiums compete for tenants. National Apartment markets were strong during 2007 as homebuyers faced lending challenges. Supply may begin to outpace demand as unsold homes and condominiums enter the market seeking income to offset unsold inventory. Demand should stay fairly steady throughout the year, but growth will likely slow as supply and demand reach equilibrium.

Commercial real estate has seen nothing but upside volatility for the past four years, and although it now is facing challenges, this asset class should hold its own as a solid investment. Make sure you are in the correct liquid position when purchasing, prepare yourself for monthly challenges.

Marc Tesla