All Forum Posts by: Drew Shirley

If you're putting down 25% of the purchase price (say $300K on a $1.2MM property), you can generally earn more than 10% if your cap rate is three points higher than your interest rate on your financing. (This is just a very general statement and not exact by any means).

For example, if you put down $300k on a $1.2M building at a 7.5% cap rate, your NOI will be $90k. If your mortgage is 4.5% over 30 years, your debt service will be $54,722.01 per year. That leaves $35,277.99 in cash flow, or 11.76%.

Of course, you should have extra capital set aside for capex, reserves, and the oops! factor, but that's how the numbers would work.

1 Vote

Originally posted by @Courtney Preston:

I do not recommend series LLC. They are being treated as one main entity legally. They are fairly new and personally I believe it is too risky. I agree with Cody, 1-2 LLCs for each unit. Or whatever your risk tolerance is. When you have some assets, seek an asset protection lawyer.
I am also going to think twice over insurance policies, they are in the best interest of the insurance broker. It's worth some due diligence, study, and cross referencing.

Where are series LLCs being treated as one legal entity? How? What has been the result?

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I hate to make any assumptions, but I would assume these duplexes have been converted to condominiums so they can be sold one side at a time. Condo conversions were all the rage in Texas for a while, though I hadn't heard of a lot of duplexes being converted like that.

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@John Nachtigall

You are the integrityest person I've ever known. God bless you, sir.

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Breaking a contract is not breaking the law. There is no breach of contract jail. It is not ILLEGAL to breach a contract. In fact, any contract worth the paper it is printed on CONTEMPLATES that either or both parties might breach it.

And spare me with this talk of integrity. If the tenant induced the landlord to sign a contract under false pretenses, that's fraud at worst. And at best, it's incomplete information.

@John Nachtigall

@John Nachtigall Let's say you're the landlord in this situation and the tenant shows up on move in day with a flame thrower attached to his back. When you inquire, the tenant says he's going to torch his new house as soon as you give him the keys. He just likes to watch things burn. Do you still hand him the keys? He hasn't done anything yet, and you after all, you signed the contract. AT WHAT PRICE, YOUR INTEGRITY?!?

This is a business arrangement. If the landlord has credible evidence that letting the tenant move in will cause him untold financial hardship, he would be... well, I don't want to say stupid, so let me say "not smart" to let the guy move in.

1 Vote

Best advice is to talk to a California lawyer for sure.

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All the Houston lawyers say HEYYYY

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Originally posted by @Nick G.:

@Derek Bonanni

Lots of bad advice in this thread, much of which is illegal in California, here's the deal:

You need, first and foremost, to talk to an attorney and your broker if you have one. Nobody can properly answer this without having read your lease.

However, speaking very generally - typically in California, once you sign the lease and the tenant is delivered a copy, and once the tenant delivers the agreed-upon Move-In Costs in the agreed-upon time period (typically deposit + first month's rent), that's the end of it, you're locked in, handcuffs and all. Only in the event the tenant defaults on your agreement can you even begin thinking about trying to get rid of your tenant. (Fun fact for non-CA lurkers: same goes by default for the sellers in our state's purchase contracts!)

However, while your suspicion may very well be correct, I implore you to consider the fact that the tenant has, at this point, done absolutely nothing wrong to you here. I have had experiences where the reference you called may have an ulterior motive or agenda as to dissuade you from renting to him, as I think I saw one other person mention.

If anything, it's lesson to do your diligence and wait for all diligence calls to be returned before signing a lease, ever.

For what it's worth, if you used the latest C.A.R. Residential Lease Agreement revision we just released in June, you may benefit from the protection recent language we just added in the event the tenant has not violated the lease, but was not truthful on his original application:

41. A) (...) Landlord may cancel this Agreement: (i) before occupancy begins; upon disapproval of the credit report(s), or upon discovering that information in Tenant's application is false; (ii) After commencement date, upon disapproval of an updated credit report or upon discovering that information in Tenant's application is no longer true. A negative credit report reflecting on Tenant's record may be submitted to a credit reporting agency if Tenant fails to fulfill the terms of payment and other obligations under this Agreement.

Crossing my fingers for you!

"You're locked in, handcuffs and all," huh? So they put you in jail if you breach the contract? Or do they shoot you? Do they give you a blindfold and cigarette first?

Saying "you have a binding contract" is the start of the discussion, not the end of it. Of course he has a binding contract. The question is whether it's a better move to breach it or to honor it.

I'm a Texas lawyer, not a California one, but unless there are extreme and automatic penalties for a landlord backing out of a lease this way (e.g., he would have to pay the tenant three times the entire value of the lease plus attorney's fees, something like that), then he should consider the option of breaching the lease and giving the tenant his money back. If he does that, the tenant essentially has no money damages.

(This is not legal advice and I'm not your lawyer, you person reading this.)

1 Vote

If you respond at all, have your attorney do it in writing. Don't respond by text message at all. Also, don't respond at all.

3 Votes

This is a tough situation and this is not legal advice and I am not your lawyer :), but I'd just tell the guy you've changed your mind about the lease and that you will mail him a cashier's check refunding everything he's paid you (security deposit, application fee, whatever).

Yes, legally you are breaching the contract, but (a) there might be a clause in the contract that allows you to do so (though don't make something up like some are advising), and (b) if he were to sue you, he would still have to prove damages, and how has he been damaged? Unlikely he will suffer any significant loss due to the breach.

Of course, you are in California, so it's entirely possible that the punishment for a landlord breaking a lease is death. Consult a local attorney.

12 Votes

All Forum Posts by: Drew Shirley

Drew Shirley has started 4 posts and replied 153 times.

Post: what strategy for $300K cash?

Post: More than one LLC or is one enough?!?!

Post: Why does Texas only sell half duplexes as multifamilies?

Post: Can you deny tenant that has already signed the lease?

Post: Can you deny tenant that has already signed the lease?

Post: Can you deny tenant that has already signed the lease?

Post: Nick from Houston, Texas

Post: Can you deny tenant that has already signed the lease?

Post: Would you respond to tenant's text?

Post: Can you deny tenant that has already signed the lease?