subject: An after repair value appraisal can ease your private lender [print this page] An after repair value appraisal can ease your private lender
Often I have a property under contract and have it going to the closing table and I will make a decision to send in an appraiser and get an after repaired value appraisal.
Part of the reason is because the market change and Im dealing with private lenders. Im not going to be overleveraging my properties. I want to lock in what the value was the day I bought it. So I go ahead and get an after repaired value appraisal.
When the offer is accepted, we fax the appraisal company a sheet that details all of the repairs by category. This includes exteriors paint, interior paint, windows, bathrooms and light fixtures.
I will put what I think my price of the repair will be. I say that Im going to spend $1000 to do this and then I also tell them what I think the price is going to be worth once Im done.
Theyre going to appraise it and they dont have to agree with my finished price. But they should know right up front how much money I am planning to spend on repairs. I let them know that I am going to put a cheap faucet in and some other plans.
The appraiser that I work with is one that the banks were using. I tried them out and found out that they were the most fair. I didnt say the highest or the lowest, but the fairest appraiser in town.
It seems like their number equaled what I thought and felt that the property was worth. I thought they were a very fair appraisal company and so thats the one I continued to do business with. I dont cheapen the work like some of the other real estate investors do. So if I say Im going to put a new sink in and the appraise goes back in the house theres a new sink in the house. I give them confidence that when they do their work and they appraise it for the after repaired value its going to be justifiable. I also tell them, like I said, what I think its worth.
I think thats important because Id rather try to have a meeting of the minds right up front. If were thousands of dollars different than Id like to have a dialogue with them on why.
We include an appraisal in the property file. And if my lender requests it, I give them a copy to them. I used to give it to all of them.
In the past, I would do a deal with a private lender and then Id give them the appraisal. I got tired of doing that so I dont do it anymore. Thats not to say in your system that you shouldnt do it, it hasnt caused me any chaos.
You also must have insurance in place before you close. You have to have fire, title and owners insurance. This covers any property damage by natural risk and accidents such as fire, wind, electrical or ice. Many times flooding is not covered so remember to get extra coverage for that. If you purchased a home in low lying areas, you may need an extra policy to cover the flooding.
Title insurance protects you in case of future title issues arise. It allows you to lose any part of it to a prior owner due to title defect.
Your title search clears the title of the most obvious defects.
Lender title insurance secures the lender up to the value of their loan. So I get lender title and owners title insurance. It might look like Im double dipping. Well yes, if you dont want to do it this way, you dont have to.
If you make payments to your lender this coverage will diminish as the balance alone decreases. However, it only covers the lender and you are still at risk. So thats why I get both. I want to protect myself out there.
The owners title insurance covers you against loss from title and defects. Its premium is paid only once for this at the beginning before you close on the purchase.
A lot might come along where someone is challenging the ownership of the property. You might come across mental incompetence, fraud, false impersonations of the owner of the property, forgery, improperly probated wills, undisclosed or missed heirs, birth of heirs following the writing of the will, hidden unsatisfied claims, incorrect indexing, clerical errors, delivery of the deeds, after death grantor, confusion on similar or identical names, misrepresentation and it goes on and on.
Kevin will stop by before the closing, pay the insurance and pick up the binder to take to closing. My other staffers will fill out the particulars on the promissory note and then Kevin will sign it. We send the original note to the private lender after closing.
So we do the promissory note and the closing agent does everything else. In your case the closing agent is probably going to do everything as well as the promissory note for you.
I just happened to do it because I have a real good relationship with the closing agent that we use. We prorate the lender payment where Im going to pay the lender of the 15th of the month.
