ForeclosuresMass - ForeclosuresMass Monthly - Interview with the Expert - Look at Deals with an Appraiser's Perspective (August 2007)

A real estate investor with a portfolio of $24 million, Mark Jackson credits his success to the fact that he's also an appraiser. This background allows him to look at deals differently; he knows his markets and understands value. Recently, he took some time from his travels to discuss with us the details of being an appraiser and how the insight provided can help real estate how real estate investors make better deals.

Mark Jackson: Like most people in real estate, I come from a corporate background. I wasn't unhappy with my job but I had to get out. This was the early 1990s. I attended my first closing and had no idea what an appraisal was but thought, "Heck, I can do this."

A few years passed, and then I decided to go back to school - meaning, I attended one of those six-week appraisal training classes. You can find them at community colleges or through real estate companies.

I quit the corporate job, opened my own business, and got really good at marketing. Within three years I had 28 contractors and was doing over 2,000 appraisals a year with business revenue of $1.2 million.

* Next 37 17 investors only!

MJ: This is the funny part. You know the standard appraisal fee is only $300 - so you can see I was doing quite a number of them. I was going to loan officers to get the appraisal business and learned they were making a few thousand dollars on the closed loans - while I was making $300 per appraisal. I thought, "Did I miss something here?"

Then I started doing appraisals for several of my clients who were investors. They would pay me $400 - $500 but would make $20K, $30K, up to $100K+ on each closing. That's when I said, "You know, I'm really missing out on the riches of real estate. Without my work neither the loan officers nor the investors can close their deals, but they're earning far more income."

FMM: So when did you finally get into investing and what was your first property?

MJ: Back in 2002. I bought my first property - a 1920 bungalow in Atlanta, Georgia - for $119K and sold it for $275K. I was able to do this because I knew the market and knew what improvements to make (only $20K) to bring the property to its full market potential.

MJ: Great question. Specifically, within each market, geographical areas or neighborhoods experience re-gentrification. Certain streets within the area will be impacted more than others. Appraisers who also invest see these areas, understand the market and how each street is affected, and can precisely key in to where to get the best properties in terms of value. They have a definite advantage over the regular investor who doesn't have this ability to "recognize" these important characteristics.

Using another example, a couple of years ago I began acquiring HUD foreclosures. I trained a real estate agent to understand the locations in which I wanted to acquire properties and how to identify properties with the right market value spread. We started closing on 2 - 3 properties per month every month because she now understood value from an investing appraiser's perspective.

MJ: By value, I mean understanding the characteristics of a property. A typical investor may not see any difference between a 3 & 2 and 4 &1 - that is, three bedrooms, two baths versus four bedrooms and one bath. He sees only that each can earn $25K and $30K respectively in net profit, but because I'm an appraiser, I know the 4 &1 has functional obsolescence - it's not as marketable as the 3 & 2. Why? Not enough bathrooms for the number of bedrooms.

The numbers on the deal may look great on the 4 & 1, but I know I can easily get stuck with the sucker - it can take months to move it out of my portfolio and eat up the profit I might have gained at closing. So I don't buy it; the value isn't truly there.

Value also includes knowing the environmental or governmental characteristics. For example, the 3 & 2 property may be too close to areas of radon gas, which creates sink holes, or service stations, which have underground storage tanks whose contents have leached into the groundwater. Again, I don't buy it, because the value isn't there.

FMM: But don't appraisers tell you these things when they appraise the property?

MJ: All appraisers are trained in the proper theory, but they may not apply it. Unlike myself, you really only have two kinds of appraisers: the pretty good ones who know their craft but don't know how to market their businesses and starve, and those who market really well but do poor appraisals. Neither type offers true help to real estate investors.

FMM: What are some other things you want to consider when evaluating a property?

MJ: You want much more than the typical MLS listing or the free sites like Zillow provide. You want the legal description, prior transfer history, who owns the property now, was it ever in foreclosure, the mortgage data, any seconds or equity lines, is the mortgage fixed or adjustable, and the interest rate. You want to know the sales that have taken place around the property. On top of all of this, you want flood info, EPA definitions, and population trends for the future - in short, complete market demographics.

Mark Jackson is the founder of InvestorCompsOnline.com (ICO), a national database for real estate investors that provides comprehensive data, including mortgage information, prior transfers, sales history, and EPA definitions, for properties across the U.S. ICO also offers 24/7 online consultations and direct 1:1 assistance to help investors determine real estate value. Mark can be reached by email at mark.jackson@investorcompsonline.com or through his website at www.investorcompsonline.com.