All Forum Posts by: David M Trapani

I agree with Paul and the others suggesting purchase of another rental. Drove BMW's for 15+ years. Held back REI significantly. About 2 years ago lost paid-off Jeep to not-at-fault MVA. It was paid for cash. Living in a small downtown area, work from home, walk or bike most places, opted not to get another vehicle. Used insurance proceeds to acquire an STR. It makes about $5000+ month and just keeps on giving. Appreciation going well. Plus, it's a great place to visit. Get a cheap reliable car & plow funds into well located REI. Be sure to keep adequate reserves. Best wishes!

Tennessee. 

Cash out some equities. Build bank reserves. Also, cash on hand. Also, like Silver Eagles. Be prepared, just in case.

Prefer 6 mos+ cash in bank reserves. Also, due to uncertainties, cash on hand and silver eagles.

All good tips. I have American Modern for STR's in CA. TN STR's have Foremost and Lloyds of London. Also, a good umbrella for $1M - $3M plus is a good idea to cover all your properties as excess coverage. The premiums are usually very cheap, less than $500 year in most cases for million dollar or more coverage. Umbrellas tend to also have much more generous coverage provisions than underlying liability policies. Good for peace of mind.

Daren,

Good questions. Yes, you can sell out your interest and do a 1031 exchange with the proceeds. Yes, you can exchange commercial for residential investment property. You mention a house hack, not sure if you're referring to multi-family residential or SFH where you might rent ourt rooms.As Bryan mentions you'll need to comply with the strict 1031 deadlines. Generally 45 days from closing the downleg property to identify replacement properties and 180 days to close on upleg replacement Property(s). Reccomend you work with a reputable 1031 exchange intermediary. Also, super important to get your CPA approval on what your planning. Generally you have to buy equal or greater than the value of your interest you parted with (since yours is a partial interest CPA can guide you here) and you must use all the proceeds to avoid "boot" or capital gains taxes. Hope this helps. Best wishes.

Agreed. One way to start is to get that first out-of-state property up & running. Build boots on ground network or reasonable PM. Then if it goes well, expand. No need to move, unless that's desired. By the way, we have reciprocity in Tennessee. No need for another bar exam. 

Hi Wilson,

A very good question. For comparison sake, I 1031’d all long-term rentals out of California due to state-wide rent control & no doubt more tenant protections coming down the pipe. As Wesley points out 49 other choices. Traveled to the states I liked, forged relationships for boots on the ground and/or reasonable rate PM. Loved it so much, found one where I moved myself. Now it’s home as well. Best wishes on your decision & a successful journey!

Reserves are a must. 6 months is best, or more if possible.

The insurance companies are denying claims for "business interruption" or lost rents.They fear opening of the floodgates and an avalanche of cases, if they find coverage. Of course they're denying coverage.

Most people won't make claims. Others who make claims are being denied. Still far fewer will press their claims. That is where we may see coverage found or settlements (confidential) made.

So, the issue is in flux. Some policies have a virus exclusion. In those instances, coverage will be very difficult, if not impossible.

Next, if no virus exclusion, the carriers will claim there's no "physical damage", hence no coverage.

This argument may not ultimately carry the day. There's some helpful  language on this point in the recent case of Devito v. Pennsylvania, Wolf (currently on appeal to the US Sup Ct - Justice Alito ordered the State of Pennsylvania to file their brief by 12:00 Noon ET today - Incidentally Devito may have National implications regarding efficacy of Governors denying Constitutional rights during the pandemic).

In some jurisdictions, like CA there is excellent authority favoring policyholders. For example, any ambiguities in a policy or its language are strictly construed against the carrier and in favor of coverage. Also, if there is potential (arguable) coverage under a policy, some courts will find for coverage.

Some states have strict Bad Faith insurance laws. The carrier must act with good faith and fair dealing. If they fail to do so, or make other mistakes or unreasonable delays in claims handling, they may be liable in damages, whether there's coverage for the underlying claim or not.

More than one way to skin a cat.

There's also good case law out there suggesting coverage: See - Authorities & article below.

As the old saw goes, often the squeaky wheel gets the grease.

Hang in there all! We will get through this soon!

**********************

Motorists Mut. Ins. Co. v. Hardinger

131 Fed.Appx. 823 (3d Cir. 2005) (coverage for bacterial contamination of a house);

Port Auth. of NY and NJ v. Affiliated FM Ins. Co.

,

311 F.3d 226 (3d Cir. 2002) (“Where the presence of large quantities of

asbestos in the air of a building is such as to make the structure

uninhabitable and unusable, there has been a distinct loss to its

owner.”);

Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am.

2014 WL 6675934 (D.N.J. 2014) (holding ammonia discharge at packaging

facility constituted physical damage triggering business interruption

coverage even absent structural damage because it “physically

transformed the air…so that it contained an unsafe amount of

ammonia…[and] rendered the facility unfit for occupancy”).

See also:

https://www.law360.com/article...

Hi Tracey,

Congrats on your successful sale. That's a nice equity & a good problem to have!. Sounds like you're well poised working in the medical field. You have job security, plus a very high credit score. 

Unclear where you are based or what areas / types of properties you may be interested in. You mention possible STR play in Palm Springs. Happy to put in my 2 cents on that...first a few questions:

1. What is your long-term plan for real estate investment?

2. What other properties do you own?

3. How are your cash reserves?

4. Are you open to out of state investment or different types of r/e investment?

Currently have an STR in Palm Springs. As John D. mentions the rules have been in place for some time. In fact, a few years back, shortly before closing, the City had a referendum / initiative to ban STR;s entirely. Fortunately, that was defeated.

Palm Springs and area cities have become heavily reliant on the TOT's generated from STR's to the tune of tens of millions of dollars, in some instances 40% +/- of City's budgetary income.

These can be and are excellent investments, most of the time.

We are under a moratorium currently in PS (also all of Riverside County to June 19, also La Quinta). We've lost significant income March, April May due to Covid-19 and shelter in place orders. Airbnb breached its policy and refunded monies to guests which was illegal - that for another story.(VRBO and Turn-Key upheld correct policy sending the rents to hosts). Fortunately, mine are low LTV. It's OK to be vacant for awhile.

A task force was just formed in PS to work on re-opening tourism in PS. Coachella Valley is heavily reliant on tourism. It is one of the most popular vacation destinations. The airport (up until the outbreak) had record traffic. The area is booming.

https://www.desertsun.com/stor...

Wagering tourism and STR business will ramp back up in the area soon.

That said, STR's can be a risky business model, as rules can and often do change. Not for everyone. Must have alternate plans, such as LTR, moving in, refi cash out, lease with option to buy, cash to equity, assume mortgage, etc. Also, low LTV and good reserves are key to weather any economic storms, such as the present one.

Currently pretty heavy in STR's 3 cities, 2 states. Likely will thin those out. Original plan was to 1031 equity on some of those to more NNN QSR's. Although we've had to make some (minor) temporary rent concessions there while only drive-thru, pick-up and food app delivery is allowed. Those concessions are deferred to be repaid in monthly installments over 12-24 mos going forward.

May just cash out 1-2 of the equities in the STR;s pay the cap gains (which in normal times I'm loath to do!) and stash for additional cash reserves.

Concerned in the current politicized and medical climate there may be a mutation or relapse (or MSM-fueled rumors of them) which could chill the market again in the Fall or Winter.

We're re-opening in Tennessee and in other Southern states around April 27. The 7 counties in the SF Bay Area look like their stay at home expires May 3 (also San Benito and Santa Cruz Counties) although who knows, could be extended.

If cities / states refuse to open we should see extensive litigation supported by the US Attorney General  and DOJ. At the extreme end, possible unprecedented Presidential emergency powers the likes of which have not been seen since 1960's school desegregation cases or actions as extreme as those taken by the Lincoln administration during the Civil War (blockading ports, destroying or taking over newspapers and mass media, arresting governors and even congressmen, etc) and later during Reconstruction in the South; Wilson during WWWI, FDR during WWII, Bush and Obama post 9/11.

Despite what MSM would have us believe (they all think they're lawyers - they're not - plus they have an agenda) the 10th Amendment does not carry the day - The President has unlimited Commander in Chief (plenary) emergency powers. See 10 USC Sections 252, 253. Congress already gave this power to the President by federal law. Congress cannot interfere. After 9/11 the Bush and Obama Admins vastly enhanced the powers of the President. Numerous cases uphold the powers of the President - (Prize cases, Reynolds, Korematsu, Quirin, Luther v. Borden, Hirabyashi, with some exceptions (Youngstown Sheet) - In Youngstown, the President did not have federal statutory authority - here he clearly does. Do not believe the MSM! If you really want an eye-opener on Presidential power look at the John Yoo memo and the case of Al-Alaquai v. Obama. As US Supreme Court Justice Alito has stated, referring to plenary or unitary executed powers of the President: "The president has not just some executive powers, but the executive power — the whole thing." Our history is replete with Presidents who override even the Supreme Court, if they purport to override executive emergency powers - Andrew Jackson, Abraham Lincoln, George Bush, Obama and others. The bottom line is the President has the power. He is the Commander in Chief backed by the US military.

That's were the rubber hits the road!

For these reasons, feeling confident our economy will re-open with reasonably narrowly tailored protections - not the currently imposed Draconian house-arrest-style means employed by too many governors and mayors. The US economy is a matter of National Security. I'm hopeful the Mayors and Governors will read the law and not follow the MSM propagandized-agenda-driven mantra. Would prefer not to see extreme Presidential powers instituted and rebel Mayors and Governors taken by the military to Guantanamo Bay. Because many of the courts are closed due to Covid 19, we'd be talking no habeaus corpus, no hearing, no trial...just hold them as long as the President sees fit. Lincoln,FDR, Bush, Obama and others have done it. I hope those seeking to destroy the US economy will not force the President's hand.

Either way the President will get us back to work.

Getting back to work should bode well for real estate.

Please forgive the long (legal) diatribe. This stuff is all tied together. We will re-open and do well!

As for your decision - Depends on what you want to achieve, your cash reserves and risk tolerance.

You're in a great position. I'm sure you'll make a good choice.