All Forum Posts by: Brian Kloft

First I am not a lawyer nor do I have anything in Florida so I do not know Florida law. However there are some things that I did not see mentioned. 

1: Have you been given anything that is signed by the tenant stating that they have turned their security deposit over to this LLC? Or is it just a letter from the attorney saying that they did? Your lease was with the tenant, not that LLC and anything that LLC sends you might not be valid.

2: Your lease was with the Tenant. It is a contract between you and her. She can not unilaterally change anything in that lease. Thus her "assigning" her deposit to the LLC might not even be something that she can legally bind you to. Just like when there are multiple tenants on a lease they can't just take someone off or add someone to the lease. I don't know that she can legally put the LLC in her place for the deposit.

3: Typically for lawsuit purposes sending someone a notice via regular mail will not count as service. If they didn't send it in some way that they have proof of service (Certified, Return Receipt, UPS, FedEx, etc) then it won't count as service. Anyone can stick a letter in an envelope and take a pic and say you mailed it but then never actually put it in the mail. 

4: The little bit that I have had to deal with stuff like this in court I believe that anything that the opposing party files with the court, not only do they have to send to you as well, but the court upon accepting it then sends you a copy as well. If the court did not send to you a copy of what they filed on the 24th then the court may not even recognize it as valid. 

Personally I would look more into #2. The LLC is not part of the lease and thus has no rights or claims to anything regarding the lease, unless you ever signed something agreeing to the LLC to become part of this transaction. Thus they would have no standings for a claim. Find out if they even have the right to assign their security deposit to someone else.

Spend the $200-$300 for a half hour consult with a RE attorney and get their opinion. If they tell you that you have nothing to worry about then you can rest easier than all of us non attorneys telling you stuff. It sucks paying the $300 but better than paying the deposit to that LLC.

I know you probably have a pit in your stomach over this and are losing sleep worrying about it and stressed out. Stupid stuff like this is one of the reason many get out of the Landlording gig. Everything you are feeling is normal. In my many years of this (property management company for over 20 years) I have dealt with similar stuff a handful of times and I still get the pit in my stomach and sweats while my stubborn side says do not cave in when we know we are right. Stay strong. It sounds like you did the right thing and you don't live in CA where even doing the right thing you can be screwed. 

Quote from @AJ Wong:

Quick update: Rockaway Beach OR has instituted a CAP on nightly vacation rental permits. Actively licensed rental permits can transfer to new owners but unlicensed properties will be subject to a waitlist currently 100+/- permits over the new maximum. Likely years for an unlicensed property (not commercially zoned) to obtain a permit but typically there are at least a handful of actively licensed listings on market for sale in the area.

 Personally this is the way I think governments should implement these regulations. Don't take away those that already have it or make it hard to sell. If you are buying a property and can't get one for years, at least you know that going in and you didn't buy it, get a license and then a year later told that you are going to lose the license. It will take longer to lower the numbers but it seems the most fair to those that already have a license. 

First take two steps back. 

Now the fence being dilapidated is both yours and your neighbors responsibility. If the fence was in good condition the dog would not be causing any issues. If anything happens on your property you will get sued because you didn't make sure that the fence was a secure fence when you knew it was dilapidated. The dog owner may or may not be willing to contribute to the cost to fix or replace the fence. I have had neighbors that were willing to go in 50/50 and other neighbors that didn't have any money and were not able to contribute, so I had to pay for all of it. I wouldn't ask for more than 50% an if you get it, be happy that you got 50%. Some people just don't care about back yard fences and there are places where most people have wide open back yards without any fence. Either way the fence needs to be secure.

With the dog's current actions you are making a lot of assumptions. It is normal for a dog, in their own backyard, to be bark and go running to the part of a fence that has a person on the other side of it, and often get on their hind legs with their front paws on the fence. They are protecting their land. This is an inherent action for most dogs. My dogs do this all the time. They are not aggressive dogs at all (border collie mix and long hair chihuahua). If there were not a fence there they would go running to the person to get pet and lick them, but with a fence they bark at anyone walking by.  

Perhaps the dog is just being a dog, or perhaps it is an aggressive dog. Either way, you still need to get the fence fixed to protect you tenants and yourself. Even if it is just from a strong wind gust that blows the fence over and it lands on someone. 

I will only put in the 10 year battery smoke detectors. I write down on them what year they were installed so it is easy to determine if we are close to the end of the 10 years. On top of the potential insurance claim, imagine if someone died because the smoke detector didn't go off. You can have everything you want to protect yourself in the lease but there will be a lawyer out there that will try and say that you are still responsible and not the person that died. That lawsuit would cost more than the building, if you lose, and if you win you will still be out a lot of money; and way more stress than the batteries. I prefer the 10 year battery ones over the hardwired ones. At the end of the 10 years you have to replace the whole unit, but how reliable is any unit after 10 years anyways?

Also @Karl B. never use those Harbor Freight batteries for anything that matters. They are incredibly unreliable and very underpowered. I have tried using some, from time to time, and there are times that they device won't even work because there is not enough energy in the Harbor Freight battery. 

Quote from @Jay Hinrichs:

Quote from @Brian Kloft:

@Nathan Frost First I did not read every response but I am going to give you my answers since I tend to be of a different philosophy than most on here when it comes to debt. We have a very low debt level on our properties so we have a high cash flow and don't lose sleep over making payments or if a tenant is going to pay or not. We just had to pay $60k for 3 renovations at the end of the year and a roof is coming up next month. It drained our reserves for the property but it has been growing fast again. Your problem is what all of the people that keep saying to refi and buy more, refi and buy more, don't talk about. They think it is low risk because they have zero equity, but they never factor in the risk or the stress of having it all collapse on you; which you are starting to realize.

First, stop buying. You need to build up a much much bigger reserve for your properties. With that high of debt, $60k is not enough let alone the $25k that you have. You have 12 properties. You need to focus on stabilization and optimization now. Every penny you make from the properties needs to go into reserves to build it up. If you have any extra money from your W2 job at the end of the month, set that aside for a secondary reserve as well. Build up that war chest. If you wanted to sell a property because you don't like it, that is fine, just put all you make into your reserves. However from what I saw it looked like all you are going to get from all but one property is $10k per property or less. If you can go a year without any issues then that will add another $24k to your reserves, bringing it up to $49k. That should give you a little breathing room, even though it should be higher.

I challenge you to look at your investments in a different way. Imagine how it would be if you owned all of your properties free and clear. No Loans. In current dollars, how much would you be making. Would you be very happy with that? It is a lot easier to deal with 12 properties that are paid for than to deal with 48 or more properties that have heavy debt on them. Also how much are they worth and what would that look like if they were all paid off? If you want to have more income and more net worth than what the 12 can provide you, even if paid off, that is fine. Just take a break from buying and get yourself on solid ground. Get your debt paid down so that you have some cushion if you need it. You don't want to have to sell 4 or 5 properties just to pay for some big problem when having $60k+ in the bank would do that and you would still have your properties. Build up your reserves to $140k+ and if you are in a better place then you can take $40k and buy another property, but you will have that $100k reserve to help you weather any storms. 

Like I said, my approach is just about the opposite of everyone on here, but I can tell you that two of my paid for renovated units cash flow more than your 12 units do and I don't worry about making any of our payments and managing 2 units is way easier than 12. Even my "high" debt property I could sell for cheap and fast and still come away with a lot of money to cover any huge issue because it is not leveraged at 70%+ of the value. I am not against debt, just high debt to value ratios.

I have been making this same point on BP for the 10 years I have been here. However pretty much get shouted down by the refi till you die crowd  max leveage get as many doors etc etc.
With low value assets.. ( to me thats 150 or so and under)  paying those off as soon as possible for long term hold I think is a smart play..

 Good to hear that there is someone else on here that isn't all for the refi till you die idea.

I agree with @Remington Lyman. If you can house hack where you are and the numbers look good it is a great way to start out. 

As you have heard in the comments, a single family is typically easier to sell if you need to than a duplex; and while one tenant is technically easier than two, I don't think there is that much difference in how hard one is to own than the other. My view and my buy box is always where can I ad value? If a property is ugly and I can fix it up and make it pretty to get nice tenants at good rent rates, that is what I look for since I can force appreciation; and having forced equity and better cash flow because of now higher rents is always preferred to me. 

 Honestly, probably the best advice on here.  Not to hate on others.  Just seems like the best approach.

Thanks, I expect to get people on here telling me how horrible it is, but everyone has to do what lets them sleep at night based on their risk tolerance. If you haven't already listen to Multifamily Strategy Christian Osgood. While he uses debt and seller financing, his long term plan is more in line with what I am saying.  Good luck and if you have any questions feel free to reach out.

@Nathan Frost First I did not read every response but I am going to give you my answers since I tend to be of a different philosophy than most on here when it comes to debt. We have a very low debt level on our properties so we have a high cash flow and don't lose sleep over making payments or if a tenant is going to pay or not. We just had to pay $60k for 3 renovations at the end of the year and a roof is coming up next month. It drained our reserves for the property but it has been growing fast again. Your problem is what all of the people that keep saying to refi and buy more, refi and buy more, don't talk about. They think it is low risk because they have zero equity, but they never factor in the risk or the stress of having it all collapse on you; which you are starting to realize.

First, stop buying. You need to build up a much much bigger reserve for your properties. With that high of debt, $60k is not enough let alone the $25k that you have. You have 12 properties. You need to focus on stabilization and optimization now. Every penny you make from the properties needs to go into reserves to build it up. If you have any extra money from your W2 job at the end of the month, set that aside for a secondary reserve as well. Build up that war chest. If you wanted to sell a property because you don't like it, that is fine, just put all you make into your reserves. However from what I saw it looked like all you are going to get from all but one property is $10k per property or less. If you can go a year without any issues then that will add another $24k to your reserves, bringing it up to $49k. That should give you a little breathing room, even though it should be higher.

I challenge you to look at your investments in a different way. Imagine how it would be if you owned all of your properties free and clear. No Loans. In current dollars, how much would you be making. Would you be very happy with that? It is a lot easier to deal with 12 properties that are paid for than to deal with 48 or more properties that have heavy debt on them. Also how much are they worth and what would that look like if they were all paid off? If you want to have more income and more net worth than what the 12 can provide you, even if paid off, that is fine. Just take a break from buying and get yourself on solid ground. Get your debt paid down so that you have some cushion if you need it. You don't want to have to sell 4 or 5 properties just to pay for some big problem when having $60k+ in the bank would do that and you would still have your properties. Build up your reserves to $140k+ and if you are in a better place then you can take $40k and buy another property, but you will have that $100k reserve to help you weather any storms. 

Like I said, my approach is just about the opposite of everyone on here, but I can tell you that two of my paid for renovated units cash flow more than your 12 units do and I don't worry about making any of our payments and managing 2 units is way easier than 12. Even my "high" debt property I could sell for cheap and fast and still come away with a lot of money to cover any huge issue because it is not leveraged at 70%+ of the value. I am not against debt, just high debt to value ratios.

I can not speak about online only banks as I have not used any. However most brick and morter banks these days have a lot if not just as many online features. I am not sure how you plan to handle rent collections but if you think there may be times that a tenant will need to pay via some non online option then having a bank in the area of the property can be good. Some lower income tenants tend to pay via cash or money orders and you could have them deposit it direct into your account and text you the receipt for you to input. I recommend trying to make it be where everyone pays online as it makes your life easier. However I have had a few tenants that did not have a computer nor a smart phone so they were not able to pay online. 

Personally I refuse to deal with any of the large banks, (Wells, BofA, Chase) and prefer to deal with smaller regional banks or credit unions. The regional ones tend to have most or all of the same services but tend to provide much better customer service. 

As far as a specific bank recommendation,  it looks like Mountain America Credit Union has a couple of branches in the surrounding area and I personally like them.  

@Ryan Daulton  Basically everything he told you is correct. However just about everything he told you he is either double dipping on or is irrelevant. 

1. Interest rate higher. When you buy, get a fixed rate locked in for long term. When you are calculating your rate of return it doesn't matter if interest rates are 3% or 10%, if your rate of return is 7% with whatever the interest rate is you are still making that 7%. Getting a 7% rate of return after paying a 10% interest rate is no different than making 7% after paying a 3% interest rate; and can be great because if rates go down you can refi and increase your rate of return.

2. Appreciation can not be assumed. Technically true and if you are looking short term then you can not bank on it. However if you buy and force appreciation you are good. Also if you are holding for 10 years you can just about be assured of some appreciation. 

3. Vacancies and evictions. These should already be calculated into your rate of return so irrelevant or double dipping.

4.repairs and maintenance. These should already be calculated into your rate of return so irrelevant or double dipping.
5.Other expenses. These should already be calculated into your rate of return so irrelevant or double dipping.
6. Other landlord losing money in 23/24. Sounds like they took out loans with interest rates that can change. If you get long term fixed rate debt then this would not happen.

7. distressed seller. Personally these are the types of properties I look for. Some people want turn key properties that are already fixed up and they won't buy these. If you are fine fixing up a distressed property then after fixed up you should be getting a much higher rate of return. Personal example, when I fix up the units in my places (2-5 unit properties) I tend to go from a 5 to a 10 rate of return. Plus the value of the property is significantly higher. So once again this is an opportunity if you know what you are doing.

ADVANTAGES

1. I never calculate in the depreciation and tax advantages when looking at a property and what kind of rate of return I am getting. I like to keep it simple and depreciation/tax advantages are just a bonus. You are right on the appreciation that you will be getting on top of your rate of return. This is where it blows other investments out of the water. 

2.This is a great way to go. It is what I would do if I was younger and it is what I am telling my daughter to do instead of her just buying her first house to live in.

3.You are correct but this is not a calculation to do in the beginning. You may at some point choose to cash out a property and pay the taxes. I just did that on one of my properties for a strategic reason. Plus you never know what the government could do in potentially changing the rules. 

OTHER ADVANTAGES

It sounds like you are looking at distressed multi fam properties. If you can find a property that is ugly and has low rents. You buy it based on its current cash flow. Then when a tenant moves out you invest money into that unit and fix it up nice (don't keep it looking like the ugly apartments like all of the competition does. I have sold my old fridges and stoves to other landlords who were putting them in their units while I was putting stainless steel appliances in mine.). You then get top market rent for the space. If there is a down turn and vacancies increase you will still be able to get yours rented out as yours will look nicer than the competition. I have taken plenty of units that were ugly and getting around $700-$900 in rent and after fix up anywhere between $1,100 and $1,600 in rent. You get that done across all the units and your rate of return now looks much better than that CD and you also increased the value of the property by forcing appreciation.

DOWNSIDES

-Real Estate is filled with risk that you don't get with CDs. You could buy a property and a major defect is not seen during the inspection and it will cost you a lot and kill your numbers and really hurt you. 

-Lawsuits

-Another covid happens and you are in an area where they make rules preventing you from kicking someone out that doesn't pay their rent for a long time. (CA did this and some people were not able to get rent for 2 years) 

-If you don't have an adequate reserve then big expenses like HVAC, roofs, etc can really hurt.

FINAL THOUGHTS

-Make sure not to overleverage

-Keep a large enough cash reserve so that when things happen that require money that you don't make bad decisions because you are desperate.

-Fix it up right and make it nice.

-Treat your tenants right, like humans and not just a cash account. 

-There are plenty of people out there that either have baggage when it comes to real estate or are scared of the uncertainty of it. If you want to be in RE then do not talk to them about it or listen to their advise, other than to make sure that your a doing things to protect yourself from all of their worries. Also don't just listen to those that have only been in it for just a few years. They don't have enough experience yet. I have many family members (most of them) that did not think it was a good idea for us to start our business. They also are not ones for investing in real estate. I just did not talk to them about it or at most I told them a little about what we were doing. (I do talk to them more about it now, but after 20+ years they have seen what we have achieved and don't try to tell me anything anymore.) Some people are made to be business owners or real estate investors and others are not. 

Just my two cents.