All Forum Posts by: Stephen Dispensa

Tampa based property manager here. To say the past few months since the storms hit have been challenging would be an understatement. But something happened to my business in November that may be a larger issue for many of you who own or manage properties in Florida after the recent hurricanes. 

I currently manage 36 doors. The vast majority of my tenants (particularly the ones I placed and did not inherit) have been great. Always pay on time, take care of their units as if they were their own, etc. However, as you can imagine, I had a small percentage of my units that were problematic. Late rent payments, etc. 

During the month of November, 4 units, pretty much all my problem tenants, picked up in the middle of their lease terms and vacated after failing to pay November rent. They all did the same thing, telling me they were going to pay, biding their time, and then by the end of the month they were suddenly gone. 

Now, this struck me as strange because these people are constantly behind on their rent. How are they coming up with a security deposit and a months rent and moving costs for a new apartment? Well today, I got my answer. 

While showing one of the newly vacated units to a potential renter, he informed me that he was displaced because of the hurricanes, and that FEMA was providing him with assistance for moving, including paying his security deposit, rent, and moving costs. That's when it hit me.

I believe that even though none of the properties these tenants were living in took damage from the storms, they applied for FEMA assistance anyway. They walked away from their leases, took FEMA money to move (and maybe even replace some "damaged" possessions, and are now living in new housing on the taxpayers dime.

So first thing, when ever I have someone displaced coming using FEMA money to pay, I'll be doing a full background into where they were living before and contacting their previous landlords. I want to know that they actually lived in a property that was damaged.

Second, I am going to be speaking with a FEMA case manager tomorrow, and will be reporting my suspisions of fraud. I am currently in the process of filing lawsuits against all of these tenants on behalf of my clients, and I am hoping we can add criminal charges onto the civil suits. These lease breaks will cost me 100s of man hours trying to fill these vacancies, repairing damage left behind, and pursuing the civil cases. I intend to go after them for everything I can. (I have successfully won damages in every eviction I've handled so far, btw).

Just letting everyone on here know what I suspect to be going on, so you can be on the lookout for this activity from some of your current and future tenants.

I thought I'd share some quick thoughts on investing in the area after the recent storms we've had. Hopefully some of you will find these insights useful in making determinations on where and how to invest after these devastating storms.

Some background: I got my start in Real Estate in NY in the aftermath of Hurricane Sandy. I worked with investors on a number of properties that had been flooded during the storm. I moved to Florida in 2017 and have been involved in 45+ flips and currently manage over 36 units throughout Tampa Bay. I'm a licenced Broker and I also handle project management for flippers, contractors, etc.

FEMA 50% Rule: ALL of the homes that exist in a Flood Zone have a 50% limit on work that can be done to repair them without bringing them into compliance with current flood standards. Since most of the homes that flooded took on electrical damage, you will almost certainly need to file a permit to do renovation as you will need the electric company to shut the power off, provide temporary meters, and turn the power back on. (In MOST cases) With permitted work, you are required to file an affadavit that the value of the work being done to a FEMA designated Flood Zone property is not worth more than 50% of the assessed value of the home. If the current tax assesment values the structure at $300,000, you are allowed to do $150,000 worth of work. Pretty straightforward, but I have seen houses where the renovation work approached those limits and building departments asked for more information from contractors regarding costs. It's rare, but it can happen. I don't know about you but I wouldn't want to get caught filing fraudulent Federal documents.

So, let's say you have a major renovation, what does bringing the home into compliance entail? Well, generally it means that the living spaces in the home need to be built about the Base Flood Plain Elevation. A basic breakdown is this: If you're in Flood Zone AE-9, it means the Base Flood Elevation for that home is determined to be 9 feet. The rule of thumb is that in order to be compliant, the living spaces of the home must be built at a minimum of 1 feet above the Base Flood Elevation. So if your home is in AE-9, you must build the living spaces 10 feet above grade.

So what are your options in these cases? There's realistically only two options:

1. Demolish The Home and Build New: You can demolish the existing house and build new. My recommendaiton would be to build the ground level as a "wet basement". You can have an extra large garage on this level, plus some storage, maybe even some covered outdoor living space. If you keep the footprint of the home the same, you can avoid timely and costly site planning applications in most jurisdictions. So long as the impervious area of the site does not change, permitting will be much simpler. The smart play would be to build a two story wood frame structure on top of piers or concrete block in most cases. 35 feet is a pretty typical height limit in most neighborhoods, so depending on elevation you SHOULD be able to build two stories on top of the elevated foundation. It may limit attic space, however you should have plenty of room for Airhandlers, Waterheaters, etc. in the non-living area of the home on the ground floor. I would however recommend elevating anything placed in a non-elevated utility room to ensure damage is unlikely in future storms. I would also strongly recommend mounting outdoor Air Condensers higher up. I had a property I manage where all 4 of our AC Condensers were flooded during Helene. First thing we did was elevate the new units 6 feet off the ground. 

2. Lift the Existing House: It's expensive, it's difficult, but we can lift anything. After Hurricane Sandy in NY the vast majority of the houses on the South Shore of Long Island were lifted through various government grant programs. However, no such grants exist at this time for the damage from the recent storms in Florida. The risk in lifting these houses is there's not a clearly established market for flood damaged homes that have been elevated. Lifting a house also takes time. New systems from Arrow Lift allow you to jack a house up in a single day, but I have not seen many contractors in the area that use them yet. You'll need to build a new foundation above the base flood elevation and lower the home onto it. The other problem with elevating an older home, although it helps reduce the risk from future flooding, it doesn't address bringing the rest of the home to current Florida standards. You'll need to look at adding hurricane impact windows and doors throughout the home, and bracing all the framing members of the house with hurricane straps. Not an impossible task, but it winds up being ALOT of work for a home that is still likely to have a number of deficiencies compared to a newly built, energy efficient home.

Now the question I've had a lot of people ask me is: I just bought a concrete block home. Can I demolish the roof and build above it to raise the living space above the base flood elevation. The answer here is . . . generally no. If you purchased a house in Flood Zone X, which does not need to conform to FEMA standards and the 50% rule, yes you could technically do this. In most cases the existing footings on post-war homes build around Tampa Bay are strong enough to build on top of. However, you'll likely only be able to go up a single story unless you reinforce the existing foundation to hold a second story on top. Again, possible, but things do start to get expensive. In properties in all the real flood zones, the problem is you need to make the underlying structure Fema compliant. This means you can't build on top of hollow block. The cells need to be filled with rebar and concrete. Flood vents need to be installed in those block walls. At the end of the day it generally becomes cost prohibitive unless some sort of grant money is released.

The biggest issue I see with the wholesale deals floating around post-storm is that NONE of us know what the ARV is going to be right now. There is absolutely going to be a good deal of money to be made in rebuilding from these storms, but this is the time to be as prudent as possible. If you think you're just going to go in and fix some drywall and resell a house in 60 days in neighborhoods that were battered by the storm for an ARV based on pre-storm sales, you are in for a rude awakening. Buy smart, and do everyone here and throughout the area a favor: Don't rebuild at the existing elevation. It just perpetuates the cycle of insurance and cost of living increases here in Florida. We need to rebuild this area correctly so that it lasts for generations to come.

If anyone has any questions about post-storm projects or deals, feel free to reach out.

Some answers to both your questions:

1. It would depend on the nature of the repair. I am a property manager and in an emergency I will go to the property and provide access. Otherwise it is the tenants responsibility to schedule the maintenace when they can provide access. ESPECIALLY if they have pets. I will under no circumstances take responsibility for the safety of a tradesmen if there are pets on the property.

2. Finding trademen and contractors is much tougher if you're self-managing. Your best bet is to ask for referrals from professionals in the space: realtors, other investors, this forum, FB groups, etc. As a property manager I've built up a rolodex of reliable professionals that I provide for all my clients, however in self-managing you will have to invest some of the time in finding those professionals for yourself.

Alot of what you say here are things my own clients have experienced. (In addition to being an investor focused broker I also provide property management for my clients in long-term holds). The clients that have done the best by far are those who take on value-add projects. They see the most appreciation, and have the lowest capital expenditure costs post-renovation. We get the best tenants in those buildings, and their cash flow is highest.

The idea that someone is going to just sell you a positive cash-flowing asset at market rate is ludicrous. You have to put in the work to ensure your asset is generating maximum revenue, and costing you the least amount in repair costs. A water heater is cheaper to replace than a flooded floor. A roof is cheaper to replace than all the drywall in a unit. An electrical rewire is cheaper than rebuilding a burnt out building. It's call real estate INvesting not real estate OUTvesting. You need to put money into these properties to build the porfolio you want.

 Yes, once you purchase the property, the property taxes will go up on January 1st of the following year based on the purchase price. You should definitely always keep this in mind when underwriting these investments.

- First questions you need to ask: Are all the entitlements in place. This means, site plan has been signed off by the county, building plan is approved, site has water, electricity, and sewer/septic. If the answer to all of the above is "Yes" then yes building these properties is pretty straight forward. What I would do in your situation though, is get the addresses of some homes the builder has already built. Then go to the city or county building department web page and look up the construction permits for those properties. Check out the inspections they have done. Whether they used the city/county inspector or hired their own "private provider" inspector, the results of each inspection should be on there. Check to see how many they failed and what the issues were. This is always a good indicator of poor craftsmanship and project delays. 

- Regarding @Basit Siddiqi's statement that if you are a developer the income would be treated as ordinary income, this is correct. However that will depend largely on the relationship between you and the company building these properties. If the project is co-owned in a limited partnership with them with them as the active partner as "developer" and you as a limited partner having no active role in the actual development process, this would be treated as capital gains income and you should absolutely use a 1031 Exchange to avoid these taxes. Speak with your accountant and your developer to figure this out. 

- Of course you could make this your main source of income long term, however just remember this will get taxed as capital gains if you are a limited partner in these properties. Best long term strategy would probably to take an active role and receive some of the income as "ordinary" income or even payroll for yourself, and the rest as dividends to limit tax liability. Again, speak to your accountant.

Lastly, ask to speak to more clients of the developer. Ask them how they're handling these same questions you have and how satisfied they are with their projects.

Diana,

I think the most important thing as an investor is to be flexible with your strategy. I understand that we all would like to be able to buy cash flowing rental properties at a low interest rate with zero deferred maintenance and sit back and collect checks. But if it were that easy, everyone would do it. 

The question regardless of what market you're in is: "How do I add value?"

If long term holds aren't working right now because of high interest rates, maybe look into mid-term or short-term rentals.

If mid-term or short-term rentals don't work for a property or market, consider simple fix and flips.

If entry prices for simple fix and flips are too high, maybe look for major renovations. 

Etc. etc. etc.

There are a couple of options here. Let's start with the tax implications in Europe:

I believe you may have gotten some incorrect advice here regarding taxes, or at least that the person telling you not to set up an LLC may have been confused.

Typically speaking, an LLC is a "pass through entity". Meaning whatever profit the LLC makes is passed on to it's owner(s). The forms vary depending on whether it's a single-member or multi-member LLC, but at the end of the day that income will come in on whatever profit you make. The LLC cannot hold cash or "retained earnings" and any income must be passed on to the owners at the end of the year. There's not any real difference tax-wise from owning the house in an LLC vs owning the property as an individual.

In the case of a neutral cash-flowing property, frankly there's no income. In the early years, your mortgage is mostly interest which is all an expense on the property. If the property is not generating a profit, you won't have any tax liability. You will need to pay income tax in the US and your home country based on any profit you make. But that's the same whether you're in an LLC or an individual. You'll have to deal with the FIRPTA tax withholding, but that would only come into play when you sell the property.

The advantage of having the LLC, is it offers you another layer of protection should anything go wrong. If there's a fire in one of your properties and a tenant is hurt, they can sue your LLC but so long as you haven't done anything personally to pierce the corporate shield, it's much more difficult for them to sue you personally.

 

Jason,

I'm a broker and property manager here in Tampa. The unfortunate situation that many of my clients have faced prior to coming to me is that their smaller property manager was bought out by a larger corporation, and consequently their services were diminished. 

Regarding your maintenance issues with your units, as your agent your property manager is responsible for reporting all issues to you and following your directions regarding repairs. If they are not showing you the obedience that you are owed with them as your agent, they are in breach of contract whether written or implied. 

Another issue I've seen, which you should look into, is MANY property managers operating without being properly licensed by the state. Here in Florida, only a Licensed Real Estate Broker may serve as a property manager. Licensed Agents working for the Broker may also serve as property managers if the broker allows. You should definitely look into your PM's licensing and take up complaints with the appropriate state agency.

Lastly, I'm not sure why you would want to stick with a property manager that you are having this much difficulty with. Your life will always be much easier when you work with the right people.

Cash flow return on SFRs is going to be minimal right now. I'm a broker and property manager based in Tampa. My clients who bought prior to 2022 are doing very well right now as rental rates are up and they've locked their low rates in till 2027 at least. My clients who bought post 2022 are breaking even or in negative cashflow. Rents haven't kept up with those higher interest rates, plus insurance rates have skyrocketed. 

If you are purely looking to invest in newer SFR homes I would suggest looking inland in Hillsborough County in the suburbs such as Riverview and Gibsonton. Many newer builds, and frankly there's a TON of them on the market right now. Rental rates aren't massively high, but I could see these homes appreciating in the coming years.