All Forum Posts by: Jarrod Kohl

There's no legitimate answer that you'll want to hear. Most jurisdictions of any size have hired companies that track this stuff. In Denver, for instance, they initially hired a company called Host Compliance to monitor STRs and sites like Airbnb and VRBO. Last year, they changed directions and awarded the contract to Linebarger Analytics and Information Services. Either way, the companies scan and scrape data from those sites looking for license numbers. The other market we work in -- Colorado Springs -- does not have a company monitoring short-term rental compliance, but word from the planning department people I talk to is that they will start to do so.

That's all to say that trying to skirt the law when it comes to vacation rentals is a short-term game. The cities will always find you eventually. If you're risk-tolerant, then play the game and have a plan B and plan C for when the city comes down on you. (And know what the STR law says about first-time offender fines.) If you're risk-averse, then find another way. Medium-term rentals to traveling nurses and remote workers is a huge market in Denver and Colorado Springs. I imagine it's the same in L.A.

Whatever you decide, good luck!

I purchased my 1st investment property from REI Nation last year and a major selling point to me was that the average tenant staying for ~5.5 years. This morning, after ~1.5 years, I was informed my tenant is terminating the lease early, without penalty, because of a military transfer. I looked in the lease agreement and there is no language to support this move. However, there is apparently a federal law allowing for military transfers without penalty. I wish I was aware of this up front, as I would've thought twice about renting to someone who is likely to be relocated during the lease term.

Re-leasing the unit is going to require me to make any necessary repairs and pay one month's rent to the management company for finding a new tenant. In short, this early termination is likely going to wipe out my cash flow for the first year-and-a-half of the lease. It's a huge bummer to have both repair and re-leasing expenses this quickly.

As a landlord, what are my rights here?

- REI is saying the tenant is only responsible for this month's rent, but in my brief googling, it appears they are also responsible for next month's. Is that correct?

- To prevent this in the future, is it within my landlord rights to tell the management company to only lease to a civilian? I want to support the military, but also don't want to lose money on this investment, which will happen if I keep putting in tenants who are likely to get transfers.

I'm sure there are seasoned landlords who knew about this rule, but it had never been brought up to me; I was a little blindsided by the financial hit. Some of it may be recouped by a higher rental fee for a new lease, but it doesn't look like rental prices have increased significantly in the area.

@Chris Clothier, would you mind weighing in?

Quote from @Account Closed:

Quote from @Corey M.:

I purchased my 1st investment property from REI Nation last year and a major selling point to me was that the average tenant staying for ~5.5 years. This morning, after ~1.5 years, I was informed my tenant is terminating the lease early, without penalty, because of a military transfer. I looked in the lease agreement and there is no language to support this move. However, there is apparently a federal law allowing for military transfers without penalty. I wish I was aware of this up front, as I would've thought twice about renting to someone who is likely to be relocated during the lease term.

Re-leasing the unit is going to require me to make any necessary repairs and pay one month's rent to the management company for finding a new tenant. In short, this early termination is likely going to wipe out my cash flow for the first year-and-a-half of the lease. It's a huge bummer to have both repair and re-leasing expenses this quickly.

As a landlord, what are my rights here?

- REI is saying the tenant is only responsible for this month's rent, but in my brief googling, it appears they are also responsible for next month's. Is that correct?

- To prevent this in the future, is it within my landlord rights to tell the management company to only lease to a civilian? I want to support the military, but also don't want to lose money on this investment, which will happen if I keep putting in tenants who are likely to get transfers.

I'm sure there are seasoned landlords who knew about this rule, but it had never been brought up to me; I was a little blindsided by the financial hit. Some of it may be recouped by a higher rental fee for a new lease, but it doesn't look like rental prices have increased significantly in the area.

@Chris Clothier, would you mind weighing in?

 Your problem is not the tenant. It is believing Pro Formas. 5% Vacancy doesn't mean each and every year its exactly 5%. But even on average it going to cost much more than 5% of rent annually. 18 mo average occupancy is a fair assumption. Then add in 1 month vacancy and 1 month leasing cost. So the cost is 2 months rent every 18 months. Add that make ready costs on average 1000/turn. Then for a property with 1000 rent you are looking at 3000$ every 18 months or 18% for vacancy costs. Not 5%. The problem is no turnkey provider will be able to sell anything with the real numbers. And 5.5 years is highly unlikely to be a typical tenancy.

I don't agree with "no turnkey provider will be able to sell anything with real numbers." REI has plenty of happy investors who will attest to the long tenant stays. And while any individual unit can churn quicker, the point of having them sign a two year lease was to ensure a guaranteed two year's pay. Typically, if a tenant leaves early, there is still a fiduciary duty for the tenant. Again, totally understand there is a military exemption, but it is surprising that the landlord isn't compensated as I'm the one dealing with the financial consequences.

My actual gross income is 160-170K. My monthly net is about $8200. When I sold my last house to buy my current home, I used profits and savings to reduce my payment and debt to income ratio as I try to keep it down. My current debt to income is about 26%. My annual bonus, net, is 20-25K. My plan for this next year(bonus pays in November) is to take that 20K, put it in bank, and use it to pay $1000/month on my mortgage, car payments, and car insurance. This will reduce my personal monthly debt to income by ~$1600/month. This will give me some financial freedom personally to do things we want to do as a family without needing or wanting to pull from the investment proceeds. We'll have quality of life and the investment side can just snowball and grow. My end goal is to get my cashflow/annual RE income to 200K and leave my current job to do this full time. I know that seems aggressive but my goal is the freedom to work for me and my family and not be on someone else's timeclock. I have a great job and am thankful for the blessing of it but I want my independent freedom.

The 2nd house should appraise for around 80-100K as it sits. It was built in 1940 and houses around it are consistently selling for 135-160/sq ft. House is 1300 sq ft which puts ARV at around 175K based on the low end of 135/sq ft. It's also on a double lot and may be one of the only in that whole town that has that so they may add value or we could separate that extra lot and utilize it later. Regardless, my 30-60K was being being overly cautious. Before lumber soared last year, the roof quote including the detached garage was $7500. Assuming a complete subfloor replacement and hardwood or vinyl plank I estimated 10-15K which might be over the top but flooring isn't cheap. It doesn't have to have it but I'd like to rewire the house and replace HVAC unit cause it's old. Depending on what all the quotes are, there is an opportunity to finish out the attic which would add sq ft and there is potential to add efficiency apartment over the existing 2 car garage which would add sq ft and add to rental income on the property. My wife will not sell it cause it's her childhood home and she wants to keep in the family for anyone that might need including our kids one day. The attic work would add sq ft which would raise the appraisal and the apartment add would add sq ft as well as rental income. This is attractive since my mom and disabled uncle rent it so on the house itself, we'll only charge them enough to cover mortgage/insurance. The apartment would allow it to actually cashflow.

All that being said, assuming the 30-60K and expected 175K ARV, on a refi at 80% LTV that would bring 140K mortgage minus the 30-60K to repay the repair loan which would leave 80-110K liquid to start our RE journey.

My long term plan based on my goals, my mentors guidance, and what I continue to learn would be to do 6 flips between now and December 2023(more if possible but it's tough market). If we don't get 6 I don't consider it a failure but that's the goal. With a criteria of netting 20K per flip that would be 120K by end of 2023 which would put our working capital at roughly 200K. After that, I'd like to BRRRR my way to 5-7 cashflowing rentals(5-7 is my mentors sweet spot) and then going back to flips. Our plan is to maintain a healthy working capital and use flip profits plus rent to pay off rentals free and clear and then start all over. BRRRR another 5-7 rentals and then flips plus rental income to pay off those. Wash, rinse, repeat. I have 1 relative that is licensed HVAC and another that owns drywall business and knows framing. Plus I am capable of a decent amount of work.

I feel like I'm in a pretty good position to start and feel more than ready. I just need to get the insurance issue worked out and then find a hard money lender to get the initial repairs done and do the cashout refi. There's lots of people in much worse shape than I am that seem to be figuring out how to make it work. I just need that first loan to build off of.

Thanks! I have a lot to think about. With the economy as it is and depending on what will soon happen, I definitely want to make the smarter choice. :)