All Forum Posts by: Greg Scott

I have extensive experience managing insurance claims.  It is a counter-intuitive process and I can tell it is creating confusion.

First, the insurance claim payout amounts are governed by law.  Typically, they require the payout to be able to cover the 95th percentile of cost, and may have a much larger scope of work than you would do yourself.  In other words, there is usually a LOT more money you can get from your insurance claim than what you need to actually complete the repairs. 

The insurance company can try to pay you less, and if you accept, that is your payout.  However, you are going to be better off collecting what you are legally due, and with the excess cash, have your contractor fix other things on the property you wanted repaired.  You don't get any bonus points at your next insurance renewal for having saved the insurance company a few dollars.

You definitely want a GC that understands the insurance claim process.  The unethical ones, working with uninformed owners, simply pocket the excess profit.  The ethical ones will give you good value for the insurance money on other improvements to your property.  I've typically had my deductible paid by the GC, which is also legal to do.  They may be able to also remove the branch for $5,500, even though insurance will pay $10,200 and then give you $4,700 of repairs on another part of the house.

For example, we had a fire in one building.  We repaired everything the insurance claim covered.  We had enough money to also do the following:
- Re-roof a different building
- Add insulation in that different building
- Completely re-plumb the building that was affected by the fire (and this was not in the claim)

Have a conversations with your GC about how this will work.

You went immediately to the tenant, but I would say you are looking in the wrong area.

You said the fire was pretty significant.  While that description is unclear, the fires we've experienced have destroyed most of the belongings of the tenants.  Even if they were not charred, smoke leaves a nasty smell and dangerous chemicals.  Most of their belongings are probably junk.  Removal of the damaged debris should be covered by your insurance.

(FWIW, if this is your first major insurance claim, consider hiring a public adjuster.)

Usually in a situation where the property is unsuitable for living due to a loss, most leases automatically terminate.  You have a signed notice from the tenant that they were moving out, with a date.  That should be sufficient that they were leaving. If they also gave you keys, you clearly have possession.  If they didn't, it wouldn't hurt to reach out to your local attorney to confirm.

I typically have waited a few months to see if any forgotten bills or unexpected checks show up.  Sounds like you are doing that as well

In mid 2020 I sold an apartment. I wasn't sure how long to keep the LLC open. I talked to my SEC attorney. He said it made sense to keep it open for the rest of the year. I asked him, "What if someone comes after us with a lawsuit next year." He said, they will be looking at suing a defunct LLC with no cash and no other assets.

I suspect in some states, there may be a way to try to claw back from the LLC owners. You may want to talk with a local attorney.

No.

If you have been curious how people have achieved financial freedom through buy & hold real estate, you will want to attend this event.  I am very excited about this upcoming gathering in Cincinnati because we have some amazing presenters.  Normally, you have to be a member of Lifestyles Unlimited or one of their guests to attend.  I'm offering to let you come as my guest as I will be the MC for the evening. If you wouldn't mind, please DM me on BP that you want to come and I can make sure your name is on the list.  

What is being presented?:

Single Family - A couple from Lafayette Indiana has bought 10 properties in the last 18 months.  They have averaged only $11,461 cash out of pocket, and by following best-practices they have averaged an amazing $38,780 in equity capture PER PROPERTY.  They now have almost $50,000 in passive income, tax free, every year!    This is a clear path to retire yourself quickly.  In their case study we will talk about their total portfolio and dive deeply into the mechanics of one specific single family deal.  Come check it out!

Multifamily - A couple from San Antonio has been buying apartments in the Cincinnati area, both in Kentucky and Ohio. Come listen while they share their experience.  See the kind of returns you can generate when you buy and operate an apartment correctly.  They will dive deeply into one of their apartment deals.  You will see they have created a fantastic place for residents to live and provided great returns for themselves and their investors.

Passive Investing - My wife will be presenting an overview of our passive investments.  We've invested in over 40 apartment syndications across eight states.  We can now live comfortably off just our passive investments alone.  (Although we are also active investors.)  Imagine achieving a place of financial stability without even having to do any of the work yourself!

I hope to see you there.

Your loan will almost certainly have a due-on-sale clause. If you ask the bank about it, you will draw attention to your situation. I also understand FHA has language in their loan docs that require the borrow to be a human, not an LLC.

I've heard lawyers argue that if the loan is in your name and the deed is in an LLC, if there was a big lawsuit, the opposing counsel could argue that you have pierced the corporate veil because you have not treated the LLC like a separate entity. In that case, the judge might conclude your LLC is invalid, providing you no protection, which is the worst case scenario as a landlord.

On another note, if you put the property in the LLC and later want to do a cash-out refi with an agency loan, you would have to quit-claim it back into your name and then wait 12 months to do the refi.

Alternately, you could beef up your insurance.  When I had lots of SF rentals, I used to have $500K liability coverage for each property plus a $2M umbrella.  Seemed to me that covered 99.9999% of possible issues.

Interesting to see this post.  Condominiumization isn't new.  It seems to happen at regular intervals around the time housing affordability hits a low.  You can absolutely make money at this if your timing is right.

On the other hand, the window in which this strategy works is historically short-lived. I've seen a number of apartments for sale, where a small portion of the units are condos, owned by individual persons.  The condominiumization was not complete when the market shifted. These properties are called a fractured condos.  Fractured condos are not considered desireable.  It causes the apartment to be worth much less.  The condo owners are also surrounded by renters so their condos are worth less.  

There is a subgroup of investors that also makes money by doing the opposite of condominiumization.  They restore fractured condos by trying to buy out the condo owners to assemble a complete apartment complex.

Place your bets now.

If you are new to real estate investing, a 1031 exchange creates a lot of risk for you.  You are under serious time pressure to buy something and if you don't know what you are doing you can make really bad decisions.

The profit-maximizing decision may be to simply sell, even if you have to pay capital gains tax.

Happy to help.  My wife and I have three properties we manage, 830 units in total.

You are used to dealing with unsophisticated owners.  On small properties, I remember getting a hand-written rent roll.  Most of the owners you will be dealing with now are fairly sophisticated, although some are still terrible operators, they are used to dealing with big dollars.

At this level it is expected that the broker will provide you tons of data. It is also very rare that they provide a price. (Ironically, if they say "selling at a 6 Cap on T12" you can calculate the sales price.) However, if you ask for the "whisper number" or "what is the seller looking for" they will give you a price.

In the end, a listed price or a whisper number is fairly meaningless.  They are only useful in one particular way. You should always run your numbers. If your high-level analysis shows the property is way over priced, never submit an offer that is more than 10% away from the whisper numbers.  It is much better to call the broker and say "I just can't get there".  That is where it gets interesting.  

Some brokers are very aggressive.  They may ask you to submit an offer at whatever you believe the price should be.  In that case, they know the price is to high and are hoping some sucker comes in at whisper.  Do your analysis.  Stick to your guns.  We were shocked once to submit an offer at 90% of whisper and make it to "Best and Final" round.

Some sellers are very aggressive and they believe the property is worth more than it is.  I've had brokers ask me to submit a low offer that I think is reasonable.  They are asking the market to show their client what the real price should be.

In the end, I think you will find the fall-out-of-bed easy deals you used to find  in small properties are nearly impossible to find on the big properties.  Instead, where you will make your money is if you can execute a business plan that unlocks value.

For example, we've built our business around value-add and operational improvements that drive improved NOI over time. We address deferred maintenance, treat our contractors well, treat our staff well, and deliver a great product for our residents. This allows us to get a rent premium over prior owners and nearby competition. We can raise enough money to deal with any and all issues we uncover.

When searching for a new property, we love finding ones where we know we can improve the property and we know we can grow rents because nearby properties are already getting those rents.  Its a lot of work, but that is where the money is made.

Hope that helped.

I was not familiar with this organization, but visited their website just now.  Three things I noted.

1) They say they have $3B in assets, but only nine properties have gone full cycle. Four of those are properties in Indianapolis which I know well.  I've even been to a couple of those properties.  I would estimate the value of the properties they've sold totaled around $150M in sales price.  It is worth mentioning that all but one were sold 2022 or earlier at the end of the last upcycle.  Many syndicators starting in the 2010s have never experienced anything but upward trajectories.  Sadly, this kid probably didn't even remember 2008.

2) The founder graduated college circa 2012, started Holdfolio in 2014, and by 2019 had 146 SF houses and 416 apartment units.  I would estimate the value of that portfolio at about $100M at that time.  So, since 2019 they increased the size of their company by 3,000% while also selling off their original investments.  I've seen some other syndicators that have done this too.  They probably didn't have the infrastructure to underwrite properly, buy right, manage correctly, or even dispose of them correctly.  It takes time, effort, and money to grow an organization.  (I purposely avoid investing with people that appear to be growth junkies.  I'd rather invest with an old-timer that sells one, buys one.)

3) Holdfolio doesn't seem to have a strategy.  First, their properties are everywhere.   Buying in one city allows you to develop relationships, understand which judges to avoid, which contractors to use, etc. etc.  If you are buying everywhere, you can't do that.  We also have economies of scale because our properties are near each other.  If we have staffing emergency at one of our properties, we can shift someone out to help short-term.  Because they work for us, there is zero learning curve. We don't miss a beat.  You can't do that with one giant property in each city.  Also, they've also dabbled in other types of commercial properties besides multifamily. That screams "we are making this up as we go". I consider myself well-versed in multifamily. Having studied some other commercial assets, there are similarities, but also huge differences.  If I was going to enter a new space, I would build scale and experience.

In my opinion, they were irresponsible with your money. I hope you are able to get most or all of it back.