MANY BRRRR Projects will Fail Today because of this Critical Miscalculation. Understand the Risk Now

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what’s going on everybody it’s matt aka

the lumberjack landlord here with mike

silver from one rest of the time michael

we are here for segment three and this

is one’s going to be action-packed


i’ve got an itch we got a scratch

oh no we got a events coming we got

event coming it’s coming i’m putting

everybody on notice

um talk to me about your last experience

with an appraiser

on one of your properties refi


um so yeah i’ve done some refinances

here recently i did a cash out refi on a

property i’ll do my office building so i

have an office building it’s called the

hub in fresno it’s got all these awesome

real estate folks there i i did own it

free and clear on purpose

i decided that i wanted to race in


uh let’s just use some round numbers i

think this particular building heart of

fresno cute area tower district uh i

think it’s worth 350 all day long

if i had to sell it

uh i bought it for

significantly less than that and spent

some money fixing it up

so i had appraiser go in

uh and um

let’s just say he thought it was worth a

lot less

i mean a lot less yeah

again i think i could sell it for 350.

he came back i think it was 200 or 210.

oh we’re not we’re talking like 40

points yeah yeah lower

yeah and um

yeah that that’s that was my last

you know that was the result of that so

i’ll see what you have to ask so yeah so

how did you so what was your next step

after you got the appraisal from your



so i call i i called up the appraisal


uh and had a discussion because i’m like

do you do you not understand that you

know i bought the building let’s say 150

spent over 100 grand repairing it making

it nice

and it’s all leased right it’s it’s not

like it’s an empty office it’s actually

an office building that’s producing


and um

his his answer back is it’s an odd

building there’s nothing else like it

i’m like no there’s nothing else

like it

it’s why it makes it special not why it

makes it worth nothing you

i mean it’s got deep parking in the back

it’s got frontage on the main street i



he basically penalized it for being

unique and completely remodeled yeah i

hate things that are one of a kind yeah

i hate one-of-a-kind unique fully leased

properties yeah

faberge eggs with return on capital are

horrible and it’s an office building so

this isn’t no four hundred dollar

drive-by appraisal this is a 25 or

twenty nine hundred dollars

yes yes right so again so i get this the

bank’s like

michael we agree with you it’s wrong but

do you want to pay for another one you

know it’s like

not really

so you know the good news is i happen to

be in a situation where the money wasn’t


uh i do feel slighted i um

so i moved forward i just i did the deal

it didn’t feel good if i was doing like

if i was doing a bur project right i’d

have been i’d have been

crushed sorry i owe a dollar but yeah i

would have i would have at that at those

numbers i probably wouldn’t have got my

purchase price back i mean he was so far

under right this is why burr projects

are terrible because you’re relying on

an appraiser who could have a bad day

who could say one-of-a-kind unique

properties fully leased or worth half

what they’re worth

i mean i could sell the property today

in this market for 350.

yeah it’s a refi cash out so there are

going to be more conservative all the

time sure but

40 points more conservative really

that hurt

that hurt

yeah i can imagine so real quickly

couple points that i want to make sure

that we cover because a lot of people

aren’t familiar with commercial

appraisals commercial appraisals are

usually not 30 or 40 page documents or

50 page documents they’re usually 180

page documents

because they’re so much bigger there’s

allegedly allegedly so much more work

that goes into creating the appropriate


clearly that didn’t happen in michael’s

case yeah

clearly it’s a one-of-a-kind property

that there’s nothing else like it and

thus it’s bad so when we have an

appraisal go sideways it’s not six or

seven hundred bucks

in his case it was twenty five hundred

in my quake in my case it was forty

three hundred dollars

so the bank will give you two choices

one move forward


get it redone again and not at the

bank’s expense but at your expense again

so you can roll the dice and this isn’t


well yeah we’ll put it in q and we’ll

get one back out to you in two weeks it

starts the process all over again it’s

probably six weeks what is your rate

lock do you have a rate lock it probably


in that climb and you’re paying points

so when the when the move is as great as

it is in the market as it has been the

last six weeks

kind of your option is to take it that’s

exactly what i did if i would have got

another appraisal i would have lost my

sub 4 percent rate

and again i’m lucky enough to be in a

position where the extra 50 grand is not


make a difference but i was i was way

pissed off yeah

so the story that i have the the itch

that we have to scratch is

uh six unit

off market

i see the number i’m like holy cow that

number is ridiculous it was only six

hundred thousand bucks for a six unit in

a very desirable uh town

with a water view

oh wow water view not you can’t touch

the water from there but you’ve got a

beautiful view of a beautiful landscape

and river and lily pads i mean it’s


and so and it’s very this part of this

town is very exclusive there are less

than 100

buildings in this part of the town very

very tough to get to walking distance to

a big huge river that splits the state

all sorts of cool artists stuff like

it’s a kayaking fishing you name it it’s


so 600 000 is an absolute steal for this


so i’m super excited i’m like

you know when you’ve got one of those

deals where it’s just like it’s almost

too good to be true and so

that’s kind of like the deal that turns

us back into rookies

you have it yet do you have it yet do

you have it yet hey do you have it yet

hey do you have it yet do you have it

yet oh do you have it yet like you’re ty

you’re texting you’re calling you’re

emailing trying to get a hold of your

broker do we have it yet it turns into a

rookie turns you into a first time groom

again you know just everything is

sunshine and roses and you’re just like

i just gotta win this deal

so we do we get it under contract except

this seller is a real pain in my

you-know-what because every single time

we send them anything they take five

days to respond to us i don’t know why

i don’t i don’t know what they’re doing

that for but they i know i promise

whoever you are and i’ll expose who you

are after this after this video like

after we’ve closed you’re not that busy

there’s no way there’s no way you’re

that busy where it takes five days to

get a response on a property you’re

trying to sell for six hundred thousand


so we go through the process we get the

appraisal we go through the whole nine


the appraisal company says

we don’t want to go inside the units we

want to do a drive by

for a

4500 appraisal wow

yep yep



my bank says



oh no

this is not going to be good

all right sounds good and so

my broker gets the call from the

appraiser saying hey uh so we’re just

gonna do a drive by probably tomorrow

just letting you know and um and we’ll

be asking you

to go get all of our pictures and then

just send us the pictures

for forty three hundred dollars


wow that’s good business i guess yeah

sign me up

i’d be more than happy to drive by some

properties and have somebody else go

take all the pictures

i’d be more than happy to so

this happens they do the drive-by then

they actually the appraiser has a couple

questions for me i hear his name and i

know it’s familiar

and i’m like that name sounds familiar


um so i check i’m checking while i’m on

the phone with him he almost torpedo

another one of my deals six months ago

and i’m like here we go so he asks me

and he goes yeah he goes it’s gonna be

pretty tough to get to 600.

i was like

i’d pay eight

yeah what are you talking about six yeah

and he goes

you’d pay eight for that i go

yeah i would

i said

what do you see so

i’m being as gentle as a lumberjack can


i can’t get any more gentle than this


what do you see as the three main


to that region and to that area that

where that house is located what do you

see as the three drivers for that area

and his answer was

i mean i don’t really know that there

are any


interesting that’s interesting

apparently this appraiser knows nothing

about the town that he’s actually

appraising i said i said i forget i said

where where are you out of



boston is

might as well be china

it’s an it’s a little over an hour away

but our markets could not be more


in this town there are

zero single-family or zero condos

over a million dollars over five hundred

thousand dollars wow in boston there’s

building after building after building

after building album and commercial

stuff up the ying yang so

i say all that to say this i wasn’t

trying to put them on the spot i did

have to ask them the question he

couldn’t answer the question and so

i am now waiting for this appraisal to

come in he might hit six he might not

i’ve already lodged a complaint with the

bank saying we cannot be charging me 43

or 4 500 for an appraisal

and then sending somebody that isn’t

from the area doesn’t know the three

drivers for the area because michael

here’s the area that he doesn’t know

anything about

we are

this town actually has rights to send

their kids


the best regional high school in the

entire tri-state area

wow that’s one driver yeah i’d say so

right second driver is it puts them

10 minutes away


the naval shipyard that works on nuclear


where the average income

is extremely

extremely good

number two

number three

it puts you in new hampshire which has

no income tax

but you’re 10 minutes away

from being able to go to maine new


or massachusetts all via the state the

interstate turnpike wow

so those are my three drivers why for

why i buy in this town yeah


maybe i just don’t know what i’m doing

and the appraiser knows far better well

it’s not boston right

that’s that’s all we know this is not

boston exactly and so when i had that

conversation with me said

yeah you know i just i

i just don’t i just don’t think that i i

just don’t think that’s going to make

that much of a difference and i said so

when people are buying a home

if they have kids and these are larger

units they are looking for a great

school system check

if they work

and it’s not at the local walmart

they have any sort of a commuting job

they want to be close to a highway this

is five minutes from a highway and ten

minutes from the interstate


and then three

people that don’t pay income tax

legally state income tax people that

don’t pay state income tax have five to

seven thousand dollars per hundred

thousand dollars more money than if they

don’t exactly


we will see how this all turns out i

wasn’t meaning to do a cliffhanger for

anybody but we will see how this turns

out because allegedly i will be getting


report next week

and so well it’s actually interesting


i know where you’re coming from

but it actually might help you and again

i don’t know the situation at all but

let’s say it came in at 570. i know what

i would do first besides

i’d be going back to the seller go dude

you got me yeah you got to do 570

the bank won’t i mean that’s how i play

that but yes don’t disagree but i think

that the everyone here at the table

knows they took my deal because i was

clean i was fast

and because the number was

they were like listen we’re not talking

below 600. you know it’s like sounds

good then we have the right price 600.

yeah we’ll see because i wasn’t going to

beat him i wasn’t going to beat him that

the number is that good and i then

justified to him i said

he said well but what are you basing

your rent numbers on i said

i own a building five houses away i own

another one seven houses away the other


exactly and these are my rents real

numbers yeah real numbers not graphs not

feelings not i looked it up and i think

that the number should be yeah written

yeah no should bees

here are numbers that are rents and so i

have seven units

within a total of seven houses away from

this one building yeah yeah

but why would we want to use those

numbers michael no of course it’s too


it’s far too close to make an accurate

representation of what you’ll get for

rents there yeah unbelievable so

i implore you if you are looking to do a



please please

make sure please don’t have it be your

maiden voyage please


michael and i are sophisticated

investors elite investors he has almost

200 units i’ve got just over 100 we’ve

been doing this for 20 years

even for people that know the market as

well as we know it you never know who

your appraiser is going to be what

biases they have and how far away they

came from

and for you it didn’t really hurt

overall but you still have 50 grand on

the table i did and you’re never gonna

get a four percent rate again so that’s

lost money forever forever

forever so anytime you’re doing that

refi you’re looking to get everything

you possibly can because your hope is

i’m not going to refi this ever again

the likelihood is if you’re in the

threes which you were

you’re not going to refi that again as

an investor oh not at all it’ll be paid

off before it’s refund absolutely 100 so

i implore people if you’re looking at

burrs if you think that burr is the way

to go just because there’s a lot of

videos out there i am telling you please

be safe please don’t do a burr as your

first investment it is likely going to

get you in trouble because there is zero

predictability when it comes to the

appraiser and that appraiser is going to

make the decision of how much your house

is worth not what the market says

it’s not what other comps actually are

it’s what that appraiser takes from that

data that then represents that as being

most applicable towards your asset your

house well said

awesome michael tell everybody where

they can find you my friend one rental

at a time go to google search bar and

type it in should see all kinds of stuff

8 a.m pst tomorrow 11 a.m est tomorrow

michael will be there and doing his

amazingness on

the wonderful youtube live stream and

then if you’re lucky enough to be part

of his group he also has a noon which is

also very good frankly he can be more

candid there because people are paying

for his content yeah so

far more and i don’t have to guess where

people are coming from exactly well they

better have been paying attention to the

question for it yeah exactly

why’d you ask that question you’re my

course you shouldn’t have asked that

question yeah go watch this video again

exactly need to watch that one more time

case review so as i always say we create

we spend a ton of time creating great

content for you please subscribe hit the

like button super excited to have you

guys here mike have a great weekend my

friend we’ll talk about early next week

and uh at lumberjack landlord and at one

rental at a time on instagram you’ll see

us post things relevant every single day

to your successful real estate

investment journey and

being a landlord so mike thanks so much

for the time have a great weekend and we

will see everybody next week take care


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