Unfortunately, it's impossible to appraise something "in the future." With a set of plans, you can literally create value from nothing, as most successful developers know.
One of the most common phrases I hear when dealing with a construction loan is:
"The Future Appraisal." This is usually used in the context of making sure that the property will have sufficient value for us to get the loan needed to complete the structure.
Unfortunately, it's impossible to appraise something "in the future." You can only appraise value in the "now" because you only have comparable information "now." It's a common misconception because you're trying to arrive at the value of something that doesn't exist now, but in the future.
And therein lies the solution to the dilemma! What actually happens is that the appraiser is asked to pretend that the building exists now (per the plans provided by the developer) and compare it to recent sales.
This is the only time in lending that we get to work with something that hasn't happened, yet! This can be a very powerful tool in a sales situation when you're dealing with a run-down or funtionally obsolescent property.
With a set of plans, you can literally create value from nothing, as most successful developers know.
So perhaps a better term would be: "The Let's-Pretend-It's-Built Appraisal!"
Where Have all the Commercial Lenders Gone?
Government Agency guaranteed or sponsored transactions, including: SBA 7(a) and 504, HUD construction loans for multifamily projects, Community Reinvestment Act loans, USDA Business and Industry loans, and to a lesser extent, Fannie Mae and Freddie Mac multifamily loans.
Trading Up Using the 1031 Exchange
A powerful method for building real estate holdings is the use of 1031 Exchanges, which lets investors defer capital-gains assessment on investment property.
Segregate Costs for Better Cash Flow
While costs such as office equipment and furniture are easily recognizable as personal property, construction-related costs that are often included as part of real property may also qualify.
