All Forum Posts by: Kim Hopkins

Hello!

I'm an experienced industrial real estate investor, but a completely inexperienced potential short term housing rental investor.

We recently moved from Los Angeles to Flagstaff, Arizona. We kept our home in Los Angeles and would like to still visit so are not yet ready to sell. We are contemplating turning it into a short term rental. 

The rules in Los Angeles apparently say that we can only rent for a minimum of 30-day periods since it will not be our primary residence. I'm trying to assess three things: 

1. How do I get some data on rental rate and yearly occupancy % for Los Angeles with a 30-day minimum period so I can put together a pro-forma on if the numbers make sense? I can't find anything like this since most websites like Air DNA seem to focus on short term (no 30 day minimum) rentals. 
2. Does anyone know or have a guess to the laws pertaining to evictions with these kinds of stays? I would think that I can always evict a guest at the end of the rental term regardless of any moratorium but I want to be damn sure the current Covid LA eviction moratorium and any other crazy LA eviction laws don't apply to this short-but-long-term rental situation. 
3. Is there anything else I should consider, pros or cons, before doing this that I may not be thinking of? 

We are in general very hesitant to do any business in California (all our properties are outside the state), but I thought this would be hopefully low risk and offset some of the mortgage and other costs on the house. 

Thank you!
Kim 

Hi Joel

Thank you so much for this information. This was incredibly helpful in this process. Really appreciate you taking the time to give us your valuable first hand experience. So much more helpful than anything you could read in a book, etc. 

thanks!

Kim

@Joel Owens Got it thanks. They've already requested financial data and vetted against 9 lenders and provided actual term sheets, so I think we meet the criteria... You think it's worth the 1.5% fee? We paid  0.5% on our last deal. 

@Joseph Cacciapaglia Thanks Joseph, that was super helpful. Yes there is a release provision. 

Regarding the fee, the loan fee on our last loan was 0.5% of the loan amount, so 1.5% is hard to swallow. But I get there are more people involved. I guess I'll just have to see how it compares to the terms from our direct bank and see who wins. 

Hello!

We are looking to refinance two of our industrial buildings and we are considering using a broker who works with life insurance companies. The terms are very good - 15 year fixed (almost unheard of for these types of buildings), 25 year am, low rates. 

We've always worked directly with the bank of choice. We've never used a broker. And we've never gone through insurance. I have some questions for those who have experience: 

1. The prepayment penalty is significant. I'm fine with this since we intend to keep both properties for the long term. Is there any major downside to being "locked in" for 15 years that I might not be seeing? 
2. The fees are slightly lower if we cross collateralize - i.e. use one loan for both properties. The two properties are in different states. But still, I don't really see a downside to this either. It would be harder to sell one of the properties, but it's already a big penalty regardless. 
3. Additionally, if we fund both properties with one loan, it's NON-RECOURSE, vs. if we use two separate loans it's 50% recourse. Non-recourse seems pretty great. But again, I'm not planning on going under water - so is it really that much of an advantage worth the messiness or combining both properties into one loan? 
4. Lastly and MOST IMPORTANT: what do people typically negotiate on these with regards to the fees and terms? The fees are SIGNIFICANT - 1% from the broker and .5% from the insurance co. Plus they are requiring Phase I, ALTA, Seismic, and Appraisal. What can be worked on here?
5. Any other "standard terms' you like to edit when you do a loan with an insurance co. and / or broker?

Thank you much in advance!
Kim

Thanks everyone. All helpful responses. So basically the consensus is to:

A) Handle on a case by case basis if / when specific tenants come to you

B) Amortize the delayed rent over the life of their lease or some similar payment plan with a statement that we're first in line

C) Talk to lenders early. 

I'm curious - would you still have us talk with the lenders now even if we have not yet had any major issues? 

Would you ask the tenant to provide anything that proves they really need the help? For example, I know one tenant who came to us may very well be having trouble with this business but we know he is well-to-do and has several other businesses. We don't expect him to prove his finances to us but at the same time, we don't want to be the "last to be paid" or not paid at all because we gave in too easily.

Also, a lot of tenants who were due for renewals want to do month-to-month instead at their existing rates. I figure that's perfectly fine. I wouldn't want to sign a lease either. Makes sense right? 

Hello!

We own several commercial industrial/flex buildings across Oregon, Washington, Utah and Texas. Some are multi-tenant. Many tenants are  small businesses (e.g catering, CrossFit gyms, contractors), and some of the single tenants are also small businesses as well (manufacturers, event companies, etc.)

We are heavily leveraged on most of the multi-tenant properties, 75% LTV for the most part.

We have already received a message from one of our small business tenants in a multi-tenant property that they expect all their catering to be cancelled and they don't think they can pay April rent.

I expect we're at the start of a recession or at least a bad time because this will last for awhile and we have not personally been through a recession before. 

For those with experience, what is your big picture approach / policy / advice for how we should handle our tenants and these requests for reduced or no rent as they come in? I expect this could last for many months and for tenants who  lose their entire spring/summer busy season, I imagine they may not be able to pay rent or full rent for the rest of the year. 

Thank you,
Kim

okay well thanks guys. I'm glad I didn't press them for these reports that don't seem to exist. I'll just write myself a little program that assembles what I want. Thanks!

It's the calculation of cash for distribution. Makes sense to me that this should be contained in one report

So there's no way to get all of this info on one report?