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Q&A

How might rent control affect the housing market?

November 19, 2019 By Ryan Lundquist 4 Comments

If you want to get into a fight online, just bring up rent control. Yep, it’s a polarizing topic. But before we duke it out, this post isn’t about whether rent control should exist or not. No, it’s written to lend insight into how we might value properties now that rent control is legal in California. Keep in mind there are now several states with rent control, so this is something to watch as a trend.

Today I’ve invited a Bay Area appraiser, Denis DeSaix, MAI, SRA, to help shed light on the issue of rent control in real estate. Denis is an industry leader, generous educator, critical thinker, and former Marine. Please join me in welcoming him and be sure to visit his website.

LONGER: This is longer on purpose. Digest slowly or focus quickly on what interests you. I realize this is tedious too, but that’s the nature of the beast. If you work in real estate, it’s going to take time and effort to understand this.

Ryan: Tell us about your background and experience with rent control.

Denis: I’m a commercial and residential real estate appraiser with 25+ years’ experience in the valuation of residential income properties located in in jurisdictions with varying degrees of rent control. I also own a 6-unit apartment in Santa Monica, CA, a jurisdiction with a very strict rent control ordinance.

Ryan: What would you say to those worried about rent control?

Denis: There are three stakeholders I’d address:

To the current owners, the good news is that the state’s rent control ordinance could have been much more onerous (compare the state’s law to such jurisdictions as San Francisco or Santa Monica). I’d also say that as far as rental increases go, if you are at or close to a market rate at the end of 2019, you should be in relatively good shape in the short- to mid-term; the state’s law allows an increase of 5% plus the rate of inflation, with a maximum cap of 10%. In the current low-inflation environment, you should be able to adjust the rent to keep up with any inflationary increase of expenses as well as with market changes up to 5%. If inflation climbs to 5% or more, then your ability to keep-up will become constrained. On the downside is there are new eviction-restrictions. After one year’s tenancy, a tenant becomes protected and some evictions will require a relocation fee (one month’s rent). 

To current and prospective tenants, once you’ve established one-year’s tenancy you will be eligible for eviction relocation under certain circumstances. However, be prepared for changes in the way vacant units will be rented. For example, it is common in many markets for vacant units to be rented for one-year and then go to a month-to-month lease. It will likely become more common for vacant units to be rented on a shorter term for the first year; this will give owners some ability to not renew the lease before the one-year tenure. Another positive is relative certainty of rental increases going forward; in sum, your rent cannot be increased more than 5% + the local inflation rate and the maximum increase is 10%.

To buyers and sellers, I’d say the evaluation of a property’s contract rental rates has gained additional importance. While this has always been true in the more heavily regulated rent control markets, it can make a difference in newly controlled markets. The greater the disparity between protected rents and market rents, the longer it will take to stabilize that difference; this can have an impact (downward) on a property’s value. In addition, some buyers specialize in renovating older rental units or those that have not been adequately maintained will now have an additional cost for such projects as tenant relocation will probably be required. 

Ryan: What effect have you seen in your market due to rent control?

Denis: The state law is too new for me to see any direct impact so far. However, for more established rent control jurisdictions, the impact is directly related to the level of existing restrictions. For example, the City of Sacramento recently passed its own rent control ordinance. In its version, properties built before 01/01/1995 were subject to rent control. Properties that are covered under the City’s ordinances will remain under those ordinances. But properties that are built after 01/01/1995 will now be covered under the state ordinance.

However, in general, I think it is fair to say the impact on the market is directly related to the severity of restrictions of the rent control ordinance. Where rent increases are very limited, it is common to see smaller, independent owners deferring maintenance as well as delaying updates and renovations. In other words, a property begins to deteriorate faster than otherwise. This continues until a new owner takes over. And we see another dynamic as well; ownership migrates from smaller, local investors to a more sophisticated and many times out-of-town ownership entity. In other areas where rent control ordinances are less restrictive, the above scenario is less likely to occur or occurs over a longer period. 

Ryan: Would you say the effects are all negative or are there some positives?

Denis: There are specific benefits to tenants who fall under rent control: certainty of knowing how the maximum rental increase will be calculated and certainty of knowing what protections one has in the case of an eviction action.

Are there benefits to property owners? Most studies agree that stable occupancy is the most tangible benefit to the property owner. Logic would argue that there is a tipping point, however. While historically many property owners (especially if they were smaller and local) discounted the rent to existing tenants to retain them and keep the units occupied, discounting below a certain point would be unnecessary. At that point, there is no benefit to the property owner… only a cost. Therefore, at some point, the disparity between market rent and controlled rent would eliminate the benefit of stable occupancy.

Ryan: What type of investors tend to buy in rent controlled markets?

Denis: The investor profile is dependent on the severity of the rent control:  Since rent control can significantly impact the revenue stream and operating costs of a unit/building, the more significant the restrictions, the greater the sophistication and wherewithal of the investor. This is part of the ownership-migration I mentioned earlier. In some markets, the investor of an older multifamily property is not counting on current income at all; they are planning on redevelopment or conversion (say, from a 4-unit apartment to a 4-unit condominium project) to be their payday; such an investor needs a certain level of expertise and capacity to manage and finance an endeavor like that.  

Now, to be clear, this doesn’t mean that a small, local investor should not invest in rent-controlled properties. As I said, the state law is at the lower-end of the severity range as far as its restrictions and well within a basic real estate investor’s wheelhouse to understand and evaluate. But as I also mentioned, the controlled rents vs. market rent disparity takes on a more important part of the analysis, as would accumulated deferred maintenance and needed repairs or replacements. A back-of-the-envelope quick estimate may no longer be appropriate and a more formal evaluation of projected income, turn-over, expenses, and replacement/repair costs might be in order. 

Ryan: By the way, if anyone needs a visual to help understand differences between California & Sacramento rent control, here you go. In most cases rent control will not apply to single family homes unless they’re owned by a REIT, corporation, or LLC (there could be other slight variations). This is important because we often hear rent control applies to every property, but that’s not accurate. Thank you Erin Stumpf for letting me post this image.

Ryan: What stats if any do you suggest locals watch in order to measure any impact due to rent control?

Denis: Actual market rents vs. what the average controlled rent is. We can use 2019 as the base rent and benchmark to that. One thing to keep in mind: Under the state law, the most widely tracked properties to be exempt under rent control will be the newer buildings (15 years old or less from the current year).  Therefore, most “market rents” reported could include newer and, presumably, superior rental properties vs. the average rental which may be built 1950-1980.

Another metric to watch is redevelopment of older units to newer units. If that accelerates, it may be evidence that the disparity between rent controlled rates vs. market rates are such that it is financially feasible to tear down an otherwise functionally usable building in order to get non-controlled rents.

Ryan: What type of change do you think might be in store for Sacramento?

Denis: Sacramento’s rent controlled ordinance is very similar to the state’s new law in terms of rent increases. The eviction rules are slightly different but Sacramento does not require relocation assistance as long as the rules are followed. So I don’t see any immediate and significant impact to Sacramento vs. the state law. However, two things to keep in mind: 

1) Sacramento’s ordinance is set to sunset (expire) at the end of 2024; if it does, then the state’s law would automatically take its place on January 1, 2025 and be valid through the end of 2030.

2) Sacramento’s ordinance has a set-date for new-construction exemption. The City’s ordinance does not apply to properties built after 1995; in other words, they are exempt from Sacramento Rent Control.

The state law, however, has a rolling date; in other words, it exempts properties built within the last 15 years. In 2020, buildings with a construction date of 2005 or later will be exempt. In 2021, the exemption covers properties built after 2006 but those built in 2005 would no longer be exempt (hence, the 15 year exemption rolls with the current date). Because the state law applies to all properties that are exempt from an existing rent control ordinance, in Sacramento, the formerly exempt properties built from 1995 through 2004 will be required to comply with the state law.

The take-away is this: If a property is covered by an existing rent control ordinance, then the existing law is the controlling regulation. If a property is exempt under an existing rent control ordinance but would be covered under the state ordinance, then the state law is the controlling regulation. In the case of Sacramento, the impact will be to those buildings constructed from 1995 through 2004. The next event will be if Sacramento lets their law sunset in 2024; if that happens, then the state law becomes the new regulation.

Ryan: When valuing multi-unit properties, do you see a price difference between properties in light of rent control?

Denis: Yes. When I have rents that are below market, how long it takes me to get those rents to market is going to impact the value of the property. If I can get the rents to market in a relatively short time, there may be little if any impact. If it takes me longer to get the rents to market, then I’m going to pay less for that property than I would if it were at market. Why? Because it is going to take time and effort to get the rents to market (plus there is some risk involved; I might have miscalculated and it could take me longer or cost me more than I originally thought) so why should I pay the same price I would if I didn’t have all that to worry about?

In rental markets where lease-up time is relatively short and vacancy rates relatively low, vacant units can have the same value as if it were rented at market (the presumption is it can be rented quickly at the market rate).

Ryan: Any advice when choosing comps?

Denis: Appraisers are usually very good at defining a subject’s competitive market area and then the physical elements of comparison. We can identify with a high level of confidence the competitive market area, considering all the important locational influences. If our property is a 50-year old house with 3br/2.5ba, on an 8,000sf lot, we are excellent at matching those physical features. We are also very good at matching condition differences and specific location differences like backing to a busy street. Rent control is going to introduce an element of comparison that some of us may not be familiar with and are going to have to get up to speed as quickly as we can. That element is restricted rents and that is an economic characteristic that is not accounted for in the physical characteristic differences. 

Consider the following: I may have two rental properties located side-by-side and almost equal in every physical and location-based element of comparison. Typically, it is the physical or locational differences which impact rent, but in this case the two buildings are effective the same. However, one has significantly below market rents that will take some time to get to market and the other has all of its units rented at market. They are twins in terms of physical characteristics but very different in terms of economic characteristics. Assume that the buyer of this property is an investor. Is the buyer going to pay the same price for the below-market-rent property as s/he would for the at-market rent property? The answer is clearly no. This dynamic needs to be identified when it exists and its impact on value needs to be analyzed.

Also, for income properties subject to rent control, the appraiser is going to have to consider what rent control ordinance applies (local or state)? There is a significant difference in the rent control ordinances of San Francisco and South San Francisco even though the two cities are next door to each other. San Francisco is very restrictive; South San Francisco has no rent control so it will fall under the state regulation in 2020. Therefore, without additional research, using a rent-controlled property from one jurisdiction as a comparable in another jurisdiction could be inappropriate.

The bottom line is appraisers will have to ensure that they are matching the economic characteristic of rental income due to regulation rather than assuming such differences are captured in the physical/locational adjustments.

Ryan: What mistakes have you seen real estate agents make regarding rent control?

Denis: Most mistakes are due to an unfamiliarity of how rent control impacts value. The real danger is if the agent doesn’t fully understand how rent control can impact the income-stream they are going to misprice the property. Again, back to the “all other things being the same” between two properties covered by the same rent control ordinance; one rented at market and the other at a below market rate due to rent control:

If they use the at-market transaction’s cap rate to price the rent-controlled listing, there is a risk that the property will be underpriced. Here’s the math:

Market Rate property generates $100,000 net income and sells for $2,000,000; a cap rate of 5%.

Below Market Rate property generates $90,000 net income ($10,000/year less). Based on a 5% cap rate, it would be priced at $1,800,000. The difference is $200,000 in price. But assume I do a little deeper analysis and I feel confident that with normal tenant turn-over and with the ability to increase rents 5% + CPI, I think I can get to market rents in 3 years. To keep it simple, let’s say the first year I’m negative $10,000, the second year I’m negative $5,000, and the third year I’m negative $2,500 (at the end of year three, I’m at market). I’ve only lost $17,500 in income over three years but I’ve discounted the price $200,000. 

Let’s flip the example. My below market rate property sells at $1,925,000; this is $75,000 less than it would if at market but it reflects the lost income of $17,500 and the additional expenses of releasing and updating the units plus some reward for taking on the risk involved. My in-place net income was $90,000 when it sold for $1,925,000, which equates to a 4.68% cap rate (one can see why a below market rent property would have a lower cap rate than a market-rate property, all other things being the same).

If I apply that cap rate to the at-market property’s income ($100,000) I’ve now priced it at $2,138,000. In other words, this misapplied application results in an additional $138,000 more than what it should be.  If I’m the seller, I’ve over-priced the property and if I’m the buyer, I’ve over-paid.

Ryan: What mistakes do you think appraisers make?

Denis: Here are the ones I commonly see:

– Failure to properly identify & summarize the rent control restrictions when they exist
– Failure to properly identify and evaluate their impact on value
– Failure to consider their impact in all the approaches to value

Let’s put this into a residential context and assume I’m valuing a 4-unit property. For 4-unit valuation, cap rates are not ideally utilized when analyzing income. A gross rent multiplier is the most commonly used technique (some argue that GRM analysis is not a true income approach technique, but that argument doesn’t matter in this case). Lets’ further assume that my subject’s units are configured as 1br/1ba units and that the typical buyer for this type of property is an investor (the buyer is not going to purchase this to use for personal occupancy; they are purchasing for investment purposes).

The first thing I have to do is make sure I understand what rent control ordinance (if any) applies to this property and then summarize it. The state law doesn’t just apply to 2+ unit properties. SFRs and condos may be subject to rent control depending on the ownership entity (if owned by a REIT or corporation, of in some cases, if owned by an LLC where at least one member is a corporation). So if an appraiser receives an assignment to value a residential property and that residential property is a rental, the appraiser should take some steps to verify if it is subject-to or exempt from rent control ordinance; this means confirming with the client the ownership status to some degree and disclosing that confirmation-process in the appraisal report.

Next, if I have a rental that is subject to rent control, what does that mean? It means that I now must evaluate and analyze how those restrictions impact the subject’s value. Let’s assume my property is covered by the state law and I’m currently 6% below market with regard to my rents; will that impact value? Maybe, but here’s an argument why it likely wouldn’t in a moderately stable rental market: If rents are increasing 3% per year, and assuming inflation is less than 5% per year, I can make up that difference in 2-years. Will the market participants discount the price in this scenario? That needs to be confirmed at the local market level with those participants but analyzing the dynamic using the math can give us an indication of the significance of the difference. 

My point here is that for some appraisers whose markets were not subject to rent control, there is a new dynamic which may require additional analyses than what was needed previously. And, in all cases, this dynamic needs to be reported when it is relevant given the assignment.

Ryan: Any other advice you’d give to the real estate community?

Denis: Non-real estate entities rely on us to be their experts in matters real estate. Whether we are consulting with an estate attorney or working with a buyer or seller, each of us brings to the table specialized knowledge to assist our clients in addressing their real estate needs. The state rent control ordinance represents a significant change in California’s residential-income real estate market. We must ensure that we stay up to speed on the changes that impact this segment of the market if we are to maintain our expertise and fulfill our role as a competent and trusted advisor.

Ryan: Anything else you want to say?

Denis: This new regulation represents a very significant change. Thanks for giving me the opportunity to share my thoughts and observations on this matter!

Ryan: Thank you so much. This was really valuable Denis. I appreciate you. Everyone, please visit Metrocal Appraisal’s website.

QUICK CLOSING THOUGHTS: There is lots to take in when it comes to rent control, so it’s going to take some time to understand it. My advice? Pay close attention to the letter of the law so you are speaking correctly about properties. On this note, be cautious about saying rent control applies to single family homes because it won’t in most cases in Sacramento and California (unless owned by a REIT, corporation, etc…). Most of all, watch the market closely so you’re in tune with what is happening with values.

——————– interview end ——————–

I hope this was helpful.

RESOURCES: Here’s an overview of rent control in California with a video link of Puneet Singh, an attorney, talking through new laws for the rental housing industry in 2020. Her talk is about an hour, so pop some popcorn and get to it if you wish. Also, here’s a tenant advocacy toolkit (PDF) that does a good job visualizing some of the details of AB 1482. It might be useful to print this file and read a few times to help digest information.

Questions: What if anything are you concerned about with rent control? What stood out to you most about the interview? Did we miss anything? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: AB 1482, Bay Area appraiser Denis DeSaix, California Tenant Protection Act, Denis DeSaix appraiser, mistakes agents make, mistakes appraisers make, Q&A, rent control in California, rent control in Sacramento, statewide rent control, things to consider about rent control units, valuation of rent control properties

That place where insurance & real estate collide

March 19, 2019 By Ryan Lundquist 19 Comments

Insurance can make a huge difference in a real estate market. We don’t often think much about this, but it’s something to watch in areas of California where we’re seeing insurers pull out of the market in light of disastrous fires. This is a big deal, so let’s talk about it.

Today I’m doing a Q&A with Eric Carlson who manages two Lyon Real Estate offices in Placerville and Cameron Park. I was talking with Eric about this recently and figured it would make for a helpful blog post. After all, this is a dynamic affecting real people right now. 

Ryan: What’s happening with insurance costs in El Dorado County? 

Eric: With all the recent wildfires in California over the past few years, and especially the Paradise and Malibu fires, insurance companies are rapidly pulling out of areas like El Dorado County with their fire insurance, or even their full coverage. In most cases they will still insure the structure and contents, but for the vast majority it’s really hard to get the fire insurance component. 

Ryan: El Dorado County is a 2+ hour drive from the Town of Paradise, but what happened there is affecting the local market?

Eric: Yes.

Ryan: Why does fire insurance even matter for real estate?

Eric: Lenders won’t close on a property without fire insurance. It’s something they tend to require.

Ryan: How are buyers getting insurance if big companies are backing out?

Eric: It’s now very common that buyers (and even some existing homeowners that got cancelled) have to go with the California Fair Plan for their fire insurance. This type of insurance is basically a last-resort policy available in California that is often used when someone has not been able to obtain insurance. Fun fact about the Fair Plan… It has already been announced they are raising their fee 10% to 20% on April 1st. 

Ryan: What type of rates have you seen your clients quoted lately?

Eric: For insurance companies that are still insuring, it’s super high. We’ve had some quotes come back for like $8,000, $14,000, and even $20,000 for the year. And that’s just for the fire insurance component… It doesn’t include all the other additional insurance for the structure, contents, etc. For now, it seems that a “typical” home, like a 3-ish bed, 2-ish bath home of 2,000 square feet or less, on 2-10 acres will pay about $4,000 per year for the California Fair Plan.

Ryan: What effect have you seen in the market due to these changes?

Eric: Additional insurance costs have scared away some buyers from buying in our rural area. Buyers have actually said that to my agents. They don’t want to pay an additional $300 to $400 per month for not-so-stellar fire insurance. Other buyers have put a hold on the rural property search/move until the insurance companies decide what the long-term plan is. As you know, added costs to a purchase can lessen desirability and/or affordability. And now there is that feeling of it being a “risky purchase” if a fire like the one in Paradise were to come through our part of El Dorado County. We actually had one seller credit the buyer about $25,000 so the buyer could get two years of insurance.

Ryan: Are you seeing this throughout El Dorado County?

Eric: We don’t see this happening in El Dorado Hills. But it starts in Cameron Park/Shingle Springs and carries up to Pollock Pines, and from Georgetown down to Somerset. Strangely, most of Grizzly Flats is not impacted. I’m told because of a great fire station there that can take care of the immediate town. But as some of our buyers are finding out, it applies to all homes in California on multiple acres with brush, slopes, dense foliage, trees, dry grass, etc. It’s not just our county; it’s all counties like us.

Ryan: Any closing advice for buyers right now?

Eric: Yes, I have three things: 1) Consult a few insurance agents to get a handful of quotes so you can compare rates; 2) If you can, try to use a local insurance agent in the county you’re buying in. Locals tend to be more in tune to what is going on with issues in your county and can better serve you; and 3) Talk to those insurance agents very early on in your home hunt. They can give you some general estimates while you’re searching (they’ll need a specific address to give an accurate quote), but as soon as you make an offer on a home and get into contract, immediately get specific quotes for insurance for that property. Don’t wait until your inspection contingency period is almost over. Both you and your lender will want to know those insurance costs of your future home as soon as possible.

Ryan: Thanks so much Eric. This was very helpful. You killed it.

QUICK TAKEAWAYS:

1) It’s NOT just about supply & demand: New laws, taxes, regulations, and changing business dynamics can affect prices and affordability in a market. It’s never just about supply and demand.

2) Different factors in different locations: The market isn’t the same everywhere, so it’s key to understand what factors are affecting a local area.

3) Uncertainty in the market: There is an element of uncertainty right now with changing insurance costs. This is definitely something that can constrain prices over time because it gets much more expensive to own property.

Market Update Video: In case it’s useful, here’s a market update video. It’s about ten minutes and I walk through some of the bigger trends right now with prices, sales volume, and momentum. My goal is to help explain what’s happening and give some different ways to look at the market. Enjoy.

Question: How have you seen insurance issues affect a market? Also, if you live in an area with increased costs, please share your story.

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Filed Under: Market Trends, Resources Tagged With: burned house, California Fair Plan, Cameron Park, Camp Fire, El Dorado County, Eric Carlson, fire insurance, insurance in California, Lyon Real Estate, Paradise CA, Placerville, problesm in the market, Q&A, skyrocketing insurance costs, struggles with fire insurance

Things to know about appraisals after a disastrous fire

August 8, 2018 By Ryan Lundquist 25 Comments

It’s been an utterly devastating fire season in California, so I wanted to talk about what happens on the appraisal side of things after such a disaster. This isn’t something that people ever think about until they have to, but now is one of those times. I figured this would help home owners with questions and it would help give real estate professionals a resource to dig deeper.

Today I’m interviewing Penny Woods, an appraiser colleague based out of Pleasanton CA with 30 years of experience (see bio below). Penny knows her stuff and she has vast experience with post-disaster appraisals.

Ryan: Tell us about your experience with post-disaster appraisals.

Penny: In October 1991 the Oakland firestorm totally destroyed 2,800+ single family homes and an additional 400+ townhomes. I worked for an appraisal fee office that had a major insurance company as a client with over 500 total loss properties. For the next 7+ months one other appraiser and I did nothing but retrospective fair market valuations for structures that were completely destroyed. At that time, insurance policies were written and paid out on “Market Value”, but this fire changed that. Now they are written and pay out based on “Replacement Cost”.

 

Ryan: When is an appraisal ordered after a disaster?

Penny: Appraisals after a disaster can be ordered at different times for different reasons. When it is safe to return to the fire damaged property the insurance company will start the process to get their replacement cost (Cost Approach) valuation. Additional appraisals may be needed by the property owner following the insurance company’s initial replacement cost valuation for: property tax assessment reductions, to challenge/rebut the insurance valuation, IRS causality loss tax claims, or for other types of civil litigation.

Ryan: How does an appraiser value a home if it is no longer there?

Penny: As with any retrospective valuation, some of the research is exactly what the appraiser would do for any assignment and some of it is very different. Data sources include: public tax records; planning department plans and permits; old MLS listings; the lender may be willing to provide an old appraisal, the data collected by the insurance company, an in-depth talk with the property owner; and don’t forget family photos! Yes family photos are usually still available at the homes of grandparents, aunts & uncles, and family friends. You’d be amazed how much information is available in a photo from Johnny’s birthday party or a holiday dinner.

Ryan: What date of value is used during the appraisal?

Penny: The initial appraisal is a retrospective valuation, which means the value is usually for the day immediately before the fire loss. Any subsequent appraisals may use the same retrospective date or post fire dates depending on the use/purpose of the valuation. An appraisal for a property tax reassessment would use a date after the property had been damaged. This could be the day after the fire or a more current date depending on the assessment dates. To challenge/rebut the insurance company’s valuation would require the same retrospective valuation date used by the insurance company. If the property owner needed to provide information to the IRS for a casualty loss claim there would be 2 valuations, “immediately before” and “immediately after”. The IRS “immediately before” value is the retrospective before the fire and the “immediately after” date can mean up to 2 years from the date of the loss to allow for time for the general clean up and/or recovery. If there was additional civil litigation the date or dates would be specific to the cause of action.

Ryan: What type of information does the owner need to provide to the appraiser?

Penny: As much as possible!!! Appraisers, for you to be able to complete a credible appraisal you need to have as much information from the property owners as they can provide. This could be a difficult process because you will be working with people who are in a very emotional situation. Be patient, and professional. Understand that if you are doing a lot of this type of work it may also become a very emotional and/or stressful situation for you too.

Ryan: Does the appraiser focus on the value of the structure or the land too? In other words, what is the insurance company really asking for?

Penny: The insurance company is looking for the value of the onsite structures that have been destroyed. The land is still there and not insured so the insurance company only wants the value of the structures. With the other types of valuation assignments we have been discussing it is a case by case situation, some will need separate land valuations and some won’t.

Ryan: What did you see happen to the market in Oakland during the big fire in the 90s? Did it collapse, stall, decline, etc…?

Penny: The Oakland fire occurred in October of 1991. This was a time throughout the country where the economy was in a decline. In the Bay Area the decline could be tracked from the Loma Prieta earthquake in October 1989 and continued through the mid 1990’s. It is difficult to say how much of the decline that occurred in the Oakland and Berkeley Hills was directly related to the fire and how much was the overall declining market trends. There was also a unique situation where the majority of the properties that before the fire had nice wooded views or little “peeks” of the San Francisco Bay suddenly had partial to full bay views! That alone increased the value of these properties. It was a slow process to rebuild, a total of 700 permits for new construction had been issued 1 year later and none of them had actually started to build. Again some of that could certainly be attributed to the overall economy. I believe that each market will react differently depending on the extent of devastation and the specific economy of the surrounding area. 

Ryan: Any advice you’d give to owners who just lost a home?  

Penny: While your life is certainly disrupted beyond most of our imaginations, don’t rush! Be sure you know what all of your options are before taking any major steps. Consult professionals in each of the fields where you have questions and need information and help.

 

Ryan: Any advice for appraisers too?

Penny: These disasters could be a large source of potential business. You must first remember that you are benefiting from other people’s major losses, so always be as professional as possible! Not every appraiser has the temperament to take on this type of work, but it can also be very rewarding helping the fire survivors rebuild their lives even if it doesn’t involve a move to a different location.

Ryan: Thanks so much for doing the interview. You killed it. Everyone, if you need an appraiser in Penny’s area, please reach out to her.

Penny’s Bio: B. Penny Woods, owner of BPW Appraisal & Realty Service based in Pleasanton, CA, has been working as an appraiser for the past 30 years, coming from a background of property management and real estate sales. She got her start in appraising by working for a fee appraisal firm; obtaining appraisal experience with both residential and small commercial properties. In 1994 she started her own firm and now does only residential appraisal work. Penny specializes in the unique and unusual properties, completing assignments for lender financing, probate, divorce, estate planning, litigation & expert witness testimony, earth movement, fire damage, and insurance claims. Penny’s phone #: 925-485-0641

I hope this was helpful and interesting.

Questions: Do you have any questions? Any stories to share? How have you seen the market change after a fire or disaster? I’d love to hear your take.

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisal after a disaster, appraisal for insurance after fire, B. Penny Woods, Carr Fire, fire damage appraisals, Mendocino Complex, Penny Woods, post-disaster appraisals, Q&A, Redding, what insurance companies want with appraisals

The emerging trend of storage container homes (Q&A)

June 20, 2018 By Ryan Lundquist 15 Comments

Storage container units are all the rage on HGTV, but they’re starting to pop up in real life too. So let’s talk about them. Today I have an interview with James Roberts who handles design and engineering at TAYNR, a container home builder in Sacramento. I hope this will be insightful and interesting. Anything to add? Let’s talk in the comments.

Ryan: What got you into the storage container business?

James: I first became aware of “shipping containers” when I was a Signalman in the US NAVY. Seeing them in different commercial ports was common. After the NAVY I moved to Miami Beach where I met Sujan (Project Manager at TAYNR), and we would see shipping containers on large cargo ships, cruising in and out of the Miami Port all the time. But Denmark was the first container build I ever saw. And then London had container condos and a shopping center. Thailand, Laos, Korea Japan, Mexico, Costa Rica, Brazil all have many small pop-up businesses, single family homes and commercial buildings. During recent visits to China and Hong Kong, I saw new construction sites with 100s of containers modified for worker housing.

Ryan: What type of buildings can you make out of containers?

James: The possibilities are endless. The ISBU (Intermodal Steel Building Unit), the shipping container, is manufactured to carry heavy cargo of all kinds, to be stacked, and withstand extreme weather conditions while being transported across the seas. With that said, they are incredibly strong, and if modified correctly, they can be used for an endless amount of structures. Australia has been using containers for housing and commercial structures for 40+ years. America has recently (+/-10 years) started to use this building method for single family and multi-family homes, commercial store fronts, popup food stations, business marketing structures, etc. The worker housing units would be an excellent source for all means for temporary housing in the US. Emergency, migrant, farm, homeless, camping, etc. The list can go on.

Ryan: What is the maximum number on stories you can do?

James: They are manufactured to stack on top with the weight bearing on the four corner posts. It is common to see them free-standing 6 boxes high at the port. This is without reinforcement or anything securing them together. You can imagine that with additional engineering and structural support, this could easily be doubled, possibly tripled.

Ryan: Tell me about the accessory unit you built in Oak Park (the blue unit below).

James: Matt and Jamie Leonardo contacted me in late 2016. They bought their Oak Park home a few years before and had worked up some equity. Originally there was a non-permitted home along the back alley way that had to be torn down in order for their loan to be approved. Replacing this structure for a revenue generating dwelling was pretty much in the plan from the beginning. I do not remember where/why they decided to build with a shipping container, but we met, discussed a plan and moved forward. This home will actually be showcased on an upcoming episode of You Live In What, premiering June 29th at 9 pm on Great American Country Network (GAC), an HGTV affiliate.

Ryan: Do units get extra hot on the inside because of the steel exterior?

James: No, our units are meant to perform extremely efficient by design. By nature, corten steel will absorb the heat from the sun. This is a factor that is taken into consideration from the beginning and we have many different ways to address this. For instance, the Oak Park container home is insulated on the inside and has reflective paint on the outside. Also, a weather barrier and facade were installed on the exterior of the container to allow for a 6?+ thermal break. The roof has a 3:12 sloped standing seam roof with 3’6? eves to provide additional shade along with the insulation and weather barrier laid out inside the roofline, and it has 2 mini-split for heating and air.

Ryan: What type of units do you find most clients are asking for these days?

James: Our highest demand for individuals is an ADU (Accessory Dwelling Unit) that can be installed in existing backyards for in-law quarters, guest homes, or as a rental unit to capture additional income. The TAYNR models are designed to be “building blocks” offering both 20′ and 40′ multi-block models. 1, 2 & 3 bedroom units with 1 or 2 baths.

Ryan: How long does it take to install an ADU?

James: Foundations can be installed in 1 day, and installation of the ADU is typically 5-10 business days depending in the model size.

Ryan: Is it fairly easy to get a storage container unit permitted?

James: “Easy” is absolutely not how would describe it. However, because we have our pre-designed models and engineering understood, this does simplify our process.

Ryan: Do you know if there is a limit to how many units can be added in a backyard?

James: Any residential lot in California can have one ADU as long as the property setbacks and design review conditions can be met. So far the only issue I have run into is physical access, which TAYNR now offers an alternative modular product that can usually meet this conflict.

Ryan: Have you found some areas not willing to allow containers because of design restrictions?

James: Usually this is due to the City/County design review. Some areas require the ADU be cohesive with the existing structure. As long as budget allows, this is not an issue because we can design a facade to satisfy this point.

Ryan: So far I’m not aware of any stand-alone single family container units in Sacramento. Have you heard about any yet?

James: There currently is not a stand-alone unit in Sacramento. Stay tuned… we have one in the works.

Ryan: What are the costs like for a storage container accessory unit?

James: Models and pricing are listed on our website (here).

Ryan: Are permit fees any different for containers compared to stick-built homes?

James: No, they are not. Our builds are required to meet the same building codes and are permitted the same as a traditional build.

Ryan: Anything else you want to add?

James: One of the biggest misconceptions is that building with containers is “cheap”. This is not the case. Although there are absolute savings if the build process is followed properly. Meaning, the onsite work should be performed while the ADU is being built in the factory, so the overall start-to-finish construction is significantly reduced, saving you a lot in labor cost. 

Ryan: Thanks for doing the interview. You killed it. Everyone, please check out TAYNR’s website. All photos in this post are TAYNR projects (images are property of TAYNR).

CLOSING APPRAISAL THOUGHTS: Container homes are an emerging trend in the market, so it’s important to stay in tune with this phenomenon. I’m excited to hear TAYNR is building a stand-alone home too because that’s not something the market has seen yet. It’s worth noting one of the struggles with stand-alone container homes is the potential of financing hurdles: 1) The unit might not be large enough in size in the eyes of the lender; and 2) A lender might ask an appraiser to use container comps to show the market accepts this type of property. Well, right now there aren’t any comps (yet). But the market is craving alternative products like this, so lenders over time will hopefully adapt to this emerging trend.

Questions: What do you think of container homes? Any insight or stories to share? Loan officers, any tips on financing? I’d love to hear your take.

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Filed Under: Random Stuff, Resources Tagged With: accessory dwelling unit, ADU, Home Appraiser, House Appraiser, Interview, James Roberts, Q&A, shipping containers, storage container builder in Sacramento, storage container units, TAYNR

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