All Forum Posts by: Joseph S.

I have a lot of problems with your analysis, but let me just address your question directly and succinctly: "what components of their fee's [sic] do they think are two [sic] high"? The most egregious is charging 7% of the cost of repairs. That's what the 10% management fee is already paying for and it gives the PM the incentive to find the most expensive repairs possible. 

Can you find a way to justify the 7% add on fee for cost of repairs?

If I were purely considering the situation from an investor perspective, I would not consider purchasing higher end SFHs as with a buy and hold strategy, the cap rates seem to be very low. But if I'm considering a 1031 exchange from a current SFH rental (class A/A- but not high-end) to a higher end home that I would plan to invest in the short-run but have the option to convert to my personal resience in the medium/long-run, I may accept a smaller cap rate/return for this personal option I have down the road.

My concern is exactly how bad are the cap rates (generally, and again more specifically in Tampa folks have experience there) and even if I'm okay with a lower cap rate, will vacancy also be a major issue since there is less demand for high-end rentals as folks that can afford it often just buy these kinds of homes themselves?

Let me make this more tangible: A decent A/A- home in Tampa that sells for $250k rents for $2000/month provides $15k in net income for a cap rate of 6%. Not bad, not great. Let's say in order to pursue this 1031 exchange strategy of purchasing a higher end home so that I have the option of converting it to my personal residence, I'm willing to accept a cap rate of 4%. So if I'm looking at $700k homes and I want $28k in net income, my rents would have to be roughly $4,500/month.

Is there really much demand for rents this high (especially in FL, we're not talking about CA or NYC)? Can I really expect to get this much? Do these kind of homes generally suffer from a lot of vacancy since the demand will likely be much more sparse? In a particular area I am interested in South Tampa (Culbreath Bayou/Swann Estates), I see some rentals listed there in the $5k/month - $10k/month range, but wonder if they are actually able to get that much and if they have much larger vacancy.

@Jacqueline GardinerNear MacDill AFB, I would recommend Schooner Cove and Bayshore Pointe. Both are about a mile from base and are highly sought after by military personnel because they rent for amounts perfectly within their BAH (basic allowance for housing). Both have a fairly sizable HOA (~$300/month) so make sure that's calculated into any deal you consider.

Hmmm this seems to imply that the responses are 50/50. In reality you have a lot of folks (including 1 PM himself!) who are telling you the fees are too high, and 2 PMs who seem to be just trying to protect their industry telling you that the prices seems fair.

Both of those 2 PMs basic argument is that all you should care about is their service and then the price will be worth it. Doesn't this strike you as a bit odd? I don't know of many industries where people are encouraged to ignore price.

As others have pointed out, more alarming to me than the total dollar amount you would pay this company is the incentive system that it sets up. The misalignment of incentives (e.g., the company being rewarded financially for finding the most expensive repair option) is what is most worrisome, though the total amount paid is too high as well.

@Tom V. While I haven't used a PM myself, I've explored the market in FL because if I accumulate any more properties (currently have 2 SFHs) or switch to multi-family I'll probably start using a PM. The fees you are quoted seem very high to me based on what I've seen. Kudos to @Kevin Fox for acknowledging the same even though he is a PM himself and could have tried to "protect his own".

The only 2 folks who think the fees you were quoted were reasonable were PMs who seem to just want to protect the industry and allow for extraordinarily high fees. I've seen the same tactics in other forms discussing if you should negotiate with your real estate agent about their commission. Real estate agents come rushing to post that you shouldn't care about the fees because you should just focus on the quality of the service.

The bottom line is that simply because someone charges more doesn't mean you are going to get quality service. Less expensive PMs might provide great service and more expensive PMs might provide poor service. Decisions should be made based on the price charged and the quality of the service. 

In my 4 years as a landlord, whenever I've had needed repairs, it has never been much of an issue because I or my warranty company and have found the appropriate person to call, called them, and they fixed the problem.

About 2 weeks ago, my tenant thought he smelled gas and called the gas company who came over and confirmed that there was a leak somewhere but didn't know exactly where. They checked all the appliances and found nothing but said we would need to call someone else to find the exact location. They also said they would have to turn off the gas so my tenant has been without gas (which means no hot water) for 2 weeks.

My warranty company sent someone out, but apparently this person did not have the right equipment to detect the exact location and would only be able to operate by tearing into the wall at various spots until it was found (obviously this would not work). For the next 8 days my warranty company tried to find someone who would have the proper equipment to detect the exact location but couldn't find anyone so they gave me authorization to find someone myself. My tenant has some connections and found a guy who thought he could do it, but when he came to the townhouse he said he too didn't have the necessary equipment.

I know I'm not savvy with repairs, but this seems odd to me that no one seems to know how to fix the issue w/o destroying my walls. Has anyone had anything similar or do people have suggestions?

@Dave Foster That's really helpful. What would happen if you eventually converted to primary residence? What would happen if one died and passed on to heirs? Are they able to start over and depreciate in full?

I think this is a basic question about how depreciation works in a 1031 exchange and I think the easiest way to ask is through an example:

I buy house A for $200k, over the course of 5 years depreciate $50k of it, and then sell house A for $275k in a 1031 exchange for house B which I buy for $500k. Can I depreciate the full value of house B ($500k - land value) or does the $50k I depreciated from house A carry over and only allow me to depreciate $450k - land value over time?

I know a lot of folks on this site are looking for cash flow, but as a part-time REI I would strongly prefer capital appreciation (for cash flow in the future) because I have a good corporate job and want to minimize the taxes I pay. In the future I dream of semi-retiring/retiring fairly early, and at that point I would want to start pulling out the cash flow since I would likely be paying a lower tax rate on the income.

Are there any kind of legal entities/structures I could use that would force all my cash flows to be reinvested in REI business and thus minimize (ideally avoid) tax given that I don't need to take any cash flow from the property right now? Are there certain kinds of property that are ideal for someone who is not looking for cash flow now and instead of getting cash flow now get more appreciation in the future?

I'll actually be more keen on considering Florida/Arizona multi-family property when I'm ready, but within Arkansas I would consider any part of the state.