All Forum Posts by: Mark A.

I have multiple SFHs all insured by travelers.

In 2021 I had to file a claim for a property because of a faulty plastic piece connected to the toilet. The tenant wasn’t home and the toilet leaked and damaged all the floors. Claim was about $6000.

Now I was just notified by my PM that the roof on the same property was badly damaged by wind. The quote by my roofer for replacement of the roof was for $7500.

I made the claim. The insurance adjuster basically told me to make the claim (without explicitly saying so).

If they decide to pay the claim would you take the insurance money? Or am I going to pay extremely hard for this with premium change or a drop in coverage? Does not accepting the insurance money even help me if I already made the claim?

Any advice would be greatly appreciated!

Thank you!

Mark

@James Hamling

All solid points.

But none of what I'm saying implied that I think REI is a get rich quick scheme. I buy property to hold long term. It still doesn't mean I don't want cash flow as a defensive metric. But my point and comment on this is more simple:

Cap rates *should* increase as interest rates increase.

What it appears to me is that cap rates (at least on small multis) have not adjusted for interest rates.

It sounds like to me, you believe the housing market (and employment market and overall economy) has fundamentally changed since CoVid and that is holding cap rates down. But at the same time you are saying this is more of a “normal” housing market where you have to work for those returns. Normal to me, means that cap rates increase with interest rates.

If you believe inflation is going to be elevated at 6% for the next 10 years, sure, you care less about having a low cap rate now because your rent will continue to increase. If inflation does not continue to trend down (as it has steadily been doing) rates will continue to go up and eventually we’ll be in a recession, which will be bad for rents and vacancy.

I’m just not understanding where the excitement is for buyers without cash flow is right now?

My mortgage broker tried to convince me last week that a 7% rate and 2.5 points is not that bad because I will refinance at the end of the year.

I’m not buying it.

@Gino Barbaro

So are you saying you believe cap rates will be forced to go higher in the near future?

With interest rates at or near 7%, who is purchasing property right now (or in recent times at these rates) and actually predicted to cash flow after expenses (mortgage, taxes, repairs, maintenance, insurance, etc.)?  

Sure, you can cash flow if you buy a property that needs a full gut rehab, but I'm more talking about small/medium multifamily that may require none to some rehab (new floors/countertops/etc). Cap rates, at least in my analysis, do not have seemed to have dropped proportionally to rates.

I have been looking in a lot of markets, and the deals are sparse and people are still seemingly throwing money at properties assuming that rates will be 5% at the end of the year and rents will continue to grow in the fashion they did during the pandemic.  

My thinking is this - there are two likely scenarios in the near term, both of which lead me to NOT buy property assuming I will cash flow better in the very near future:

(1) Rates are dropped because of a recession.   With a recession, unemployment shoots up, which will be bad for rents and vacancy.   

(2) No recession.  Unemployment stays where it's at, we'll continue to have high inflation and rates will continue to be raised.  The argument could be made that rents will continue to increase with high inflation, but the data I've seen indicates that people are maxed out right now. Everyone seems to forget that interest rates don't just affect mortgage rates and business's ability to get loans, but your everyday tenant's credit card interest rate just increased also.  Wages are also not increasing at the same rate as inflation.  And if rates continue to go up, presumably we will see unemployment go up at some point leading back to scenario 1.  

The point is, it appears that the only way inflation goes away is with unemployment going up, at least at some point.  And in that case, I don't believe you will be in a better cash flow position.  

Where is the silver lining?  What am I missing here?  Is everyone just banking on appreciation like we saw over the past 3 years or a "soft landing" (where magically, inflation goes down and unemployment stays low). 

Mark

Hi all, 

I am interesting in investing in the Columbus and/or Augusta GA areas.  Looking only at multifamily. 

Looking for any experienced investors to comment on their experiences in these areas and any differences - IE., landlord friendliness, vacancy experiences, areas to avoid, etc.  

Can anyone explain how taxes are reassessed following a purchase? Does the purchase price automatically change the Adjuster FMV to the purchase price?

Also, any PM or broker/realtor recommendations would be appreciated!

Thank you very much!

Mark

@Account Closed Yes, but the action still must be foreseeable.  Is it foreseeable that the tenant will spill the oil?  Maybe, if the oil canister is an eyesore, isn't secure and easily spilled, you told him he can move it, he needed to move it to use the yard, he told you he was going to move it, etc.  My only point was, the tenant is certainly liable.  Landlord may also be liable, but depends on facts.  

"But for" causation makes sense in principal, but without foreseeabilty you'd have people responsible for all sorts of crazy situations.  Imagine the situation where it is hot and dry out and your grass is brown.  Some random guy walking down the street throws a cigarette on your lawn and ignites it and that causes your neighbor's house to burn down.  You could argue -"but for your failure to water the lawn and keep it alive, the fire spread and caused the neighbor's house to burn down".  But at the end of the day, it's highly unforeseeable that not watering your lawn is going to cause your neighbor's house to burn down.  The real and direct or "proximate" cause of the accident was the person throwing a cigarette.

Let me see if I can try to clean this up...

Your tenant was negligent and their actions directed caused the property damage.  They "caused and created" the property damage.  They did not move this oil drum safely.  They should have called to have you move it.  They are liable.  End of story.  

The more tricky question is whether you hold any liability for this accident.  The first question would be whether you owed any duty to your neighbor to prevent your tenant from affirmatively causing property damage.  The answer is likely no, but I will defer to the laws and regulations in your jurisdiction.  Assuming you do have some duty, in order for you to be liable you would have to have "notice" that this oil drum would cause damage to your neighbor's property.  Based upon the facts you've laid out, I do not see how you would have known, or should have known that this oil drum would be spilled by your tenant.

As many have pointed out above, this analysis could change dramatically if you told your tenant to move it, you gave him permission to move it, or if the oil drum had some sort of defect in it and you knew about it and that contributed to the spill. 

Of course, this analysis is probably over the top and you ultimately want to avoid any sort of litigation. If I were the neighbor's attorney I would certainly sue you also.  I would tell your tenant he's liable.  He spilled it and caused property damage to your neighbor's property.  Tell him the neighbor is going to sue him and he should contact his insurance company (hopefully he purchased a tenant policy) and make a claim.  I would also contact your own insurance company and put them on notice of the potential claim.  Your insurance company may not cover this because they may determine you did not cause it and aren't liable.  However, a failure to timely alert an insurance company of the claim can result in disclaimer of coverage. 

I will also briefly comment on the environmental situation many people are bringing up.  My above analysis is based on basic american tort law.  I am not an environmental lawyer, and this is not my area of practice.  However, I will say that often times a law or regulation that would relate to something like this will not result in civil liability to an affected property owner, but can certainly result in fines or other penalties from a governmental agency. Again, the issue is that you may have stored the oil improperly pursuant to regulations, but you did not commit the act of spilling it.  I would think that the law or regulation would have to be one of "strict liability" on a property owner for you to be liable.  Look up civil liability for environmental hazards in your area online. 

Hope that helps.  

Try Talley Lattimore in Columbia SC.  

I am an attorney and have sued my fair share of landlords in negligence cases.

First line of protection is always a sufficient amount of insurance coverage.  You want to make sure your primary policy covering your property is a "landlord policy".  If it is a simple homeowners policy there may be disclaimer from your insurance carrier when you are sued.

An umbrella policy is next.  I would always have an umbrella policy because they are typically cheap and can provide a massive amount of protection.  However, you need to make sure that you do not have any "gaps" in coverage between your landlord policy and your umbrella.  Typically, umbrella policies require a certain amount of coverage on the landlord policy before they will kick in.  Talk to your insurance company about this.

Second line is having your properties in an LLC. But what people often do not realize is that having the protection of an LLC is something that will only come into play when you have not enough or no insurance coverage (because of a disclaimer or your insurance company goes into liquidation). If you don't have enough insurance coverage and someone gets horribly hurt, the assets of the LLC may still be at risk.

And in as far as preventing a lawsuit, which is what everyone would like to do - if something is legitimately unsafe or a tenant makes a complaint about something that could be a safety issue, do yourself the favor and fix it, and fix it quickly.