No appraisal programs for commercial and Investment mortgages

Jack and Marcy talk about how they can do mortgages without appraisals, how to calculate values and how real estate investors should know the real values.

“Jack: This is Jack and Marcy again at Gelt
Marcy: Hi again, we’re back!
Jack: We want to talk to you today about we’re doing, most of our deals. I don’t want to say all, maybe 75%-80%, without appraisals.
Marcy: No appraisals,
Jack: Or appraisals that are, you know, they got to the table with somebody else.
Marcy: Right! We just review them and do a checklist and we approve them.
Jack: Yes. Now, it’s very unusual in the industry. I wanted to give, it’s more of an education video, but of course, there’s going to be a few shameless plugs. Oh, first, you know what? I realized a lot of people sign off after. So, I always say after like the video and like the YouTube.
Marcy: Okay, we’ll say it in the beginning.
Jack: In the beginning.
Marcy: Sometimes people don’t want to listen to our whole video, so let’s…
Jack: They listen to… YouTube tells me about the statistics on each one.
Marcy: Yeah.
Jack: So, like the YouTube, like the video, like the channel, hit the bell or the buzzer. Okay, so let’s talk about appraisal. So, what do we do when, how do we know what the value is? A customer calls up and says, “My value is x,” right? How do we confirm that?
Marcy: We either gonna interview the borrower in a sense or the broker and say, ‘Look, what do you think the property’s worth? What’s the current, you know, lien on it or what’s the sales price on it?’ We’re going to ask them for a rent roll so we can figure out what the NOI is, which is a net operating income. So, we’re going to ask for all the expenses on the property; taxes, insurance, and we’re going to do, like, what we look at a little Excel flow chart with how we figure out what the cap rate is. And then we’re going to come to a value, and then we’re going to look at what the borrower or the broker says. We’re going to look at the two values and compare them, and you know, we find it that we sometimes do a better job than an appraiser, to be honest with you, because we’re using straight money that the property makes.
Jack: That’s right, so a couple of highlights. Marcy said it very well. You know, we’ve been doing this for a long time and appraisal valuations. First of all, why can we do it? Because we don’t sell our loans off the secondary market.
Marcy: We’re a direct lender and we keep everything.
Jack: We keep everything; it stays on our books, so we don’t have to answer to any secondary market sources or Wall Street or anything like that. So that’s why we can do it. Why does it make sense to do it? That’s a different story and that ultimately comes down to it. I don’t want to sound pompous; I know it sounds pompous, but really, I think our values are more dependable than appraised values. I’ve seen big, and not on every appraisal, not on every deal, but I’ve become highly suspect of appraised values for a variety of reasons. So, we’ve sort of created, and we have enough experience that we can really determine our own value by looking at the as-is and the as-performed income expense. Why I say ‘as-is’ and ‘as-performed’ because a lot of the deals—
Marcy: They’re not stabilized completely. A lot of people come to us because that’s the reason they’re not stabilized.
Jack: That’s right, the value-added. So, if it’s ‘as-is,’ if it’s stabilized, it’s very simple. You have the income; you have the expenses. And it’s not just the expenses that the borrowers tell because borrowers always say there’s no maintenance, there’s no repairs, there’s no management fee. So, we add a normal fee for those things. So, we’ll come up with what we think is the right expense, and we have an idea, you know if it’s an office building or retail or a multi-family, we know what the expenses are because they’re all very similar, slightly different but it’s all very similar.
Marcy: Again, that comes with the experience that Gelt Financial has.
Jack: We’re looking at deals every day.
Jack and Marcy: All day long.
Marcy: And like that’s what we do all day, is crunch the numbers, look at this, look at the vacancy, look at the stabilized, what the expenses are.
Jack: What I think borrowers should do, and a really good lesson for borrowers, is you need to be the master of this. I made a video, a few videos on it that I posted because if you see a property and it’s for sale, and don’t depend on what the realtor or an appraiser is telling you.
Marcy: Yeah, cause they’re trying to sell you something.
Jack: Yeah, everyone’s making money off you, so you need to really come up with what you think the value is on this property independent of anyone else. You should ignore everyone else and say, “I think the value is x because of y.” And that’ll give you a firmer footing in investing as well as mortgage brokers too. So anyway, so we take the “as-is,” then we take the “as-as completed.” You know, a lot of our deals are value-added, so the “as-is” is maybe a quarter of x or no x, and then we’ll say, “What’s the fair market rent?” And to do that, you have to dig into the comps, you have to go online and say, “Okay, if it’s an office, how much is it?” Let’s say it’s a small office in the Atlanta area, how much is a B or C class office, 5,000 square feet running for in this sub-market, not just in Atlanta, in the sub-market up. So, you have to hone in online and there’s tons of resources today to go online and see what the comps are. You can go on and literally see within a 2–3 mile radius.
Marcy: Right, and a great tool online is LoopNet. They give a lot of details. So, once you figure out what the amount per square footage for the rent is, you can get an idea what the value is.
Jack: Use a reasonable vacancy, don’t be too optimistic. “Oh, it’s always…”
Marcy: But we usually use like 10%.
Jack: That’s correct.
Marcy: Right, 10% as a rule of thumb, yeah.
Jack: So, if you have the income, you have the expenses, you can come up with the cap rate, you can create your own value, and that’s essentially what we do. We literally do it. Anyway, so we come up with our own values by knowing the math, by knowing the product. You know, hotels are done a different way. Everything is done a different way, but ultimately, all this is public information. Nothing is proprietary. We do it on old-fashioned Excel spreadsheets that we put together over the years. I would encourage everyone to do the same thing, and that’s how we come up with values.
Marcy: And that’s why we can do the deals without appraisals.
Jack: You know what? Our values may not be pie in the sky, but I think they’re realistic, good, solid values.
Marcy: And you know, maybe we’re very conservative on our values, but for us, that gives us the number that we need, and if the deal works, the deal works.
Jack: It gives us the ability to stay here.
Marcy: Yeah, and also, it saves the borrower money and time because we just then take the deal, we order a title, and then once the title is back, we can set up closing.
Jack: That’s it, I think we got it all.
Marcy: Yeah, no appraisals.
Jack: Again, not on every deal, on most deals.
Marcy: Yeah, some of them we need an appraisal, but honestly, all the deals that we’ve done, like I would say, I ordered maybe two appraisals this past year.
Jack: Yeah, so it’s like 99%, you know what we do? I just, there’s a full disclosure because someone yelled at me the other day. I would do an inspection; I think it costs like $160 is very low cost, and they do an inspection. They’ll go in, let’s say it’s a three-bedroom apartment building or a store.
Marcy: They go in, they take pictures, they make sure that there’s tenants there, they make sure that there’s a business there.
Jack: Yeah, if the roof’s leaking, whatever. We can get a good idea of the area as well as the deferred maintenance. Anyway, did we leave anything left?
Marcy: Nope. that’s all for today.
Jack: Have a wonderful day. Check out our other YouTubes. Don’t forget, hit like, hit the buzzer bell, leave your comments. We answer all your comments and send us your ideas. We’re always looking for ideas to make these.
Marcy: Enjoy your day.
Jack: Enjoy your day; take care. Oh, check us out at geltfinancial.com, and if you need us, call us at 561-221-0900, extension.
Marcy: 238 and 103.
Jack: And remember “When your bank says no, we say yes”. Have a great day.
Marcy: Bye!”