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Are we returning to the 2008 real estate crash? In today’s episode Alan interviews Kelly Riedinger, an expert appraiser in Atlanta. Kelly answers the questions most first-time homebuyers are asking. Why was there a crash in 2008? Can it happen...
Are we returning to the 2008 real estate crash? In today’s episode Alan interviews Kelly Riedinger, an expert appraiser in Atlanta. Kelly answers the questions most first-time homebuyers are asking. Why was there a crash in 2008? Can it happen again? What are the signs? Is the market falling?
Alan also brings up one of the most common questions, how can an investor take their property and make it go up in value during a crazy market? Kelly brings her expertise and gives great advice for anyone looking to increase the value of their home and what is an evergreen return in value.
One quick word of advice from Kelly before you renovate, call an appraiser.
Join the community and send your questions to Alan Corey at https://www.facebook.com/groups/realestatemaxi
Learn more about leaving your 9-5 through real estate at www.realestatemaxi.com
Be sure to follow Kelly on Social Media: @kellytheappraiser
Check out Kelly's website: https://www.kellytheappraiser.com/
Read the transcript here:
Alan: Today we hear from an appraiser who has been in the business 27 years. What is she seeing that the rest of us aren't? Is this a return to the 2008 real estate crash? Well, if not, what are some ways to juice the equity in our homes right now from an appraiser standpoint? We find out this and more in today's episode.
Welcome to Real Estate Maximalist. I'm your host, Alan Corey. I've sold over 400 homes as a realtor in the past seven years. Got a book deal from Random House in my twenties to teach real estate investing to others titled "A Million Bucks by 30". I have over $50 million in assets under management. Built seven new construction homes each over a million dollars and have over 300 doors of long term rental properties.
But find it's much easier to say, I'm a real estate maximalist. Recently on my sister podcast for real estate agents called Agent Upgrade with Alan and Jasmine, my co-host, Jasmine Krnjetin of Jasmine Mortgage Team and I interviewed a top Atlanta appraiser, Kelly Redinger. You can find her @Kellytheappraiser on Instagram or her website, kellytheappraiser.com.
I wanted to highlight some bits and pieces of that interview that will be released later in this week. So if you wanna listen to the full thing, check it out over at Agent Upgrade. We kicked things off with Kelly, who's been in this business almost three decades, what she saw as an appraiser during the real estate crash of 2008, 2009, and she said she saw that coming several months, six to seven months before anyone else.
So I asked her, "you seeing similar patterns now at the end of 2022, then you did back then?"
Kelly Riedinger: No, I'm not.
Prior to 2007 and eight, it was the wild, wild West. Anybody could get a loan on absolutely anything. I used to joke that you could have a cat litter box with a roof on it, and a lender would make a loan on it.
The loans are different now. I think there's a lot more criteria that a borrower has to qualify for to get a mortgage. Stated income loans are no more, thank goodness, because I would go into appraisals and everybody in the family was at the house in their pajamas at four o'clock in the afternoon. So I knew nobody there was working and I was, I was seeing things like that that naturally concerned me, and I just knew there was a crash coming.
So, back to your question, Am I seeing anything like that now? No.
Alan: Let's dig in here and explain a few things. Back in 2008, there was something called a "stated income loan". This meant you could make a statement like, I make $500,000 a year. Then you sign your name to that statement and the bank would be like, Okay, we will look into this
no further. An applicant signed their name on a stated income form, so this must be real. Now, of course, this was insane and understandably this is why a lot of people were able to get loans they couldn't qualify for. Not to mention stated income loans come with adjustable rate mortgages, which means in three or five or seven years, that rate would adjust to the current market rates.
And then they bumped up in 2008 and 2009, these stated income borrowers got caught with being over leveraged. Now, the ripple effect across the US and the world was a financial crisis, and thankfully, there are laws now that make these stated income loans illegal and not possible anymore, and the real estate market is much safer place because of it.
During this run up and then crash, my duplex in Brooklyn went from 1.3 million appraise price down to a $700,000 market value. I didn't panic. I didn't have to panic. I had a 30 year fixed loan, which means my rate wouldn't change and also my rental income. Renting out that property covered the entire mortgage for me because my house dropped in value by 50%.
That does not mean the rent I charged dropped in half as well. In actuality it went up because now we're in a market crash where there's more renters in the market cuz people had lost their homes or they weren't able to qualify for homes and their job prospects were bleak. So there's actually more renters available than there were places for them to rent.
But the lesson here always get fixed rate mortgages. So what is Kelly seeing right now?
Kelly Riedinger: I am seeing for seemingly similar properties, I am seeing a wide range of sales prices, and that's because some of them have sold in March, April, May, when it was really competitive and people were overbidding and some have sold within the last couple of months.
In my personal opinion, I don't think that the market is falling. And I don't think it's depreciating. I think we're coming back to, to norm.
Alan: I agree. The frenzy on the buy side is definitely over, which is good, and it helps create a more stable market. We may even have a lull, and that could create a seller panic for a few months and then it'll stabilize back up.
This is what you want. Constant sustained frenzy or panic creates bubbles and massive collapses. A healthy market's gonna have ebbs and flows and feel stable over time. When interest rates drop, home prices tend to go up. When interest rates rise, home prices tend to go down. As an investor, it doesn't really matter.
As you have a higher purchase price with a lower rate or a lower purchase price, with a higher rate, the most likely be paying the same each month to month in mortgage costs. So if a property cash flows positively in any market, it's safe to buy
it.
Kelly Riedinger: I hate to use the word distressed, but, um, it was a time where buyers were distressed.
They were so anxious to get what they wanted. They were paying over, over, over, they were waving the appraisal. They were wa they were offering to pay over appraised value. And that's not really a true market. To me, that's a more of a distressed market. So, um, Usually the value's gonna fall somewhere in between the, The current comps that have sold and the really high ones.
The value's gonna fall somewhere in between.
Alan: Kelly is saying, appraisers know when there's a distressed market, either on the buy side or the sales side, and they take that into consideration. And when the market shifts, we can't give a full value to that Comp in a really hot market months ago, just like we wouldn't give a same value to a comp in a really cold market.
Also several months ago. It's a sliding scale of peaks and values. It's a happy medium, which works well for everyone with this shift, does Kelly, see it affecting investors though?
Kelly Riedinger: Most of the ones that I do, the investors, are pretty savvy and they bought, they know that the, the deal is all hinges on what they pay for the property originally.
That's everything. So I'm not seeing any investors that are not doing well. Maybe they're not getting 350 for a house, Maybe they're getting 330, but I'm not seeing people losing money.
Alan: Outside of this overall market. I wanted to take this time to really ask Kelly investor questions. Like how can an investor take their property and make the value go up in these situations?
Let's say you have two, 2000 square foot houses in your comps. One's a three bedroom, one's a two bedroom. Mm-hmm. is one more valuable in your eyes than the other because it has an extra bedroom, even though the square footage is the same?
Kelly Riedinger: Absolutely, because that's the utility of the home. And if you have, the majority of people want, not just for their use, for their family, but for resale value
a three, a three bedroom over a two. That's why if I am appraising, say a two bedroom, one bath, that's not gonna appeal to everyone. It's great, you know, for, for certain people, maybe a couple, but because it's unique and, and a little different, I, I try only to use two bedroom, one bathroom comps so I can prove that two- one market value.
Alan: So how about a bedroom and a basement? Cuz I know there's some that's like, is this above ground bedroom, below ground? And then, you know, sometimes the square footage doesn't count in a basement. Can you kind of walk us through the nuances?
Kelly Riedinger: I would say that's the main question about basements that I get every, I've had every day for 27 years, the basement and square footage.
So we look at it as above grade and below grade. So, Really and, and if you look on the appraisal form on, on the left side of the grid where the comps go, it says above grade square footage where you put the GLA, the general living area, and then it'll say below grade. So both areas count, but the, the square footage of the house is only above grade.
Now, a lot of realtors say to me, No, no, no. It's got great finishes. It's equivalent to the upper level and it's terrace level on the back, meaning it's open on three sides, it's still a basement. You know, terrace level is more of a marketing term, and like I said, we just use above and below grade.
Alan: So is there a universal discount on below grade square footage?
Kelly Riedinger: Discount? What do you mean?
Alan: You're, you're obviously calling it out differently on the appraisal. Yeah. What's the purpose of that? Is it not worth as much as the above grade?
Kelly Riedinger: It's not worth as much as above grade. That is correct.
Alan: Is there a formula to determine that discount? That, that why why's the upgrade has a premium, obviously.
So what, what is the difference?
Kelly Riedinger: There's not a really a formula other than. You know, there's, there's not a piece of paper I have that's says "adjust this much for basements", but it is less than the above grade square footage. I can tell you that. And it depends on what neighborhood
you're in.
Alan:
So there you have it.
Two homes of the same size and square footage can vary in price if they're configured differently. An appraiser uses two bedroom comps on a two bedroom house, not 2000 square foot comps on a 2000 square foot house and below grade bedrooms and basements count, just not as much as above grade bedrooms. You'll most likely get more value converting an attic than you do a basement this way.
But she did mention both attics and bedrooms need to be heated and cooled if you want them to count as bedrooms. But what is Kelly's main recommendation for anyone about to do a major renovation?
Kelly Riedinger: I wish that before people did renovations, finished basements, finished their kitchens, whatever. I wish they would call an appraiser and have it, have an appraisal done that says, Okay, once you finish spending all this money, then your house will be worth this.
So they have a more realistic vision because still today, I did an appraisal this week for someone and they spent all this money on the house about two months ago. They just finished the renovations and they wanted dollar per dollar out of it. And I had the very difficult task of explaining to them it doesn't happen that way.
Um, now you do get, obviously you get more value once the renovations are done. Okay. Any kind of renovations you get, you get some value. It's not dollar per dollar, but one of the ways I try to explain to people is you have to look at it as if your house with no renovations appreciates at maybe 2% per year, and that's low for Atlanta, 2% per year.
But you do the renovations, you do all these improvements, maybe you'll appreciate it 5% per year. So it's a passage, the passage of time plus the upgrading quality and whatever, you know, whatever improvements you've done to the properties.
Alan: So I think that's excellent advice. If you're not confident of what you're doing, you're not sure if the money you're gonna put into something, hire someone like Kelly The Appraiser, which is actually her website and her Instagram handle, and say, Hey, can you just come over?
This is my plans. This is where I'm thinking of spending. Am I gonna make money doing this? You also might learn little things about what's really hot right now in the market. For instance, in Atlanta, ADUs are really hot, an accessory dwelling unit. These are detached mini houses, sometimes called a granny flat or mother-in-law suites.
How hot is it?
Kelly Riedinger: Hot, Hot, hot, hot. Are they not ? I mean, they are huge right now because they can be in-law suites, they can be guest suites, they can be rented out to Airbnb. The teenagers can hang out there, whatever they are in the demand, and the more they're in demand, the more value I give them because the buyers in the market are speaking to me and that's what I'm hearing.
Um, of course you're gonna get, uh, more value for a detached house with the functionality of a kitchen and a, you know, couple bedrooms and a bathroom. You're gonna get more value for that than you would on something that's finished over a garage. That, not that, not because it's over a garage, but just say maybe it's a exercise room with a little half bath.
You know, the more utility you have, the more value you have, the more options you have as a homeowner to use that space. The same with pools. We used to give like $10,000 maybe for a pool and the, Yeah. And I know how much they cost. It used to be $65,000 you had the pool of a dream and now it's just the bare minimum.
Yeah. But after Covid, people started wanting their own pools, understandably. They don't wanna go to, you know, with all the public and share the pool and the water and all this. So the queues for the pool contractors were like a year long. So I took this and I noticed that people were starting to pay more for lots for houses with lots.
More amenable to building a pool. And they were paying more for houses with pools. So I went way up on my values because the market, again, was speaking to me.
Alan: So whether it's an ADU or a pool, what really matters is what is hot and in demand today. And those demands are not always universal across the nation or evergreen. Trends go in and go out.
And maybe this trend is not happening in your hometown. You have to be firmly in tuned to what's happening in your local market and try to catch that buzz. An appraiser will notice that, as well as your buyers and renters of your property. There isn't a shortcut. You just need to have knowledge of what is exciting right now.
If you wanna find out what those things are, then talk to realtors. Go to your local investor meetups, join the Real Estate Maxi Facebook page. You just have to talk to other people and say, Hey, this is what I'm seeing in my market. Are you seeing this in your market? Today's hot ADU unit might be a pickle ball court tomorrow.
You never know. Kelly and I did talk further and said, If you really want something that's evergreen, she said a large deck and a fence is pretty much a perfect return on value. It doesn't cost much and it'll have universal appeal. However, she said landscaping is good for curb appeal and photos, but not necessarily anything that shows up in an appraiser report.
All this to say, it's not an exact science, it's a nebulous, but if you've got your pulse on what's hot in the market, you're gonna be doing okay. If you do wanna hire an appraiser to come out and sort of consult you pre- renovations, typically they're gonna cost about $500, least that is in my market here in Atlanta.
But you can shop around. But I wouldn't necessarily always try to pick the cheapest appraiser you can find. You always get what you pay for.
So there you have it. That is how an appraiser looks at the property that you have, whether you're renovating it, how to put money into it. Please, if you like this episode, tell a friend, follow me on Twitter @RealEstateMaxi.
If you're a real estate agent, check out agent Upgrade with Alan and Jasmine podcast where you can find my interview with Kelly Riedinger in full. This has been another episode of Real Estate Maximalist, and I'm your host, Alan Corey. I'll see you next time.
