Many people represent themselves in our space as a 'valuation expert', myself included, but the truth is, there are no true experts in our field.  The implication of 'expert' is that you have encountered and dealt with everything this job has to offer.  That also works under the assumption that there are two of the exact same properties out there, and that's just not true.   So when people such as myself Claim to be an expert what we are actually saying is that we've seen some stuff......man

But what we can do is identify patterns that show up in our world and learn how to efficiently and effectively deal with them.  

One such pattern I see often is the Hard Money Loan and why they often fall apart before they fail. The crux of the issue is that expectations for sales price are too high and Capital investment is too low.   For anyone who doesn't speak linked-in, this just means people want maximum profit for minimal work.   

The fundamental misunderstanding that so often presents itself is that investors often see all items on a line item rehab budget as value multipliers.  That just isn't so.  

Below is the total budget page from a project I recently reviewed (used with permission of course).  

I will break this down quickly:

and it isn't until Page 4 that we see actual value being added:

Why is this significant?  In this case the borrower presented a budget in which $27,434.58—about 61% of the budget, or $9.16 per square foot—represented actual updating and modernization.  The rest are costs that, for lack of a better phrase are the price of doing business.  And the borrower was wanting 100% ROI for the entire budget.  And because of that, the appraisal was lower than both the lender and borrower were expecting.  

Why the expert stuff matters:  

When you've seen enough of something that goes bad you typically try to find solutions.  After seeing this happen all too often I developed an analyization tool which considers the market, analyzes the budget and comparables, and then applies that data to inform you of budget costs and ROI.  

One just need to ask for my 'expertise'.  Or Experience.  Whatever you want to call it.  

LRD

logan@lmdormangroup.com