All Forum Posts by: Jeff Copeland

If there is still time, GET ESTOPPELS FROM THE TENANTS!

Otherwise, what do you plan to do when Unit A tells you he paid first, last, and security when he moved in 10 years ago? Did you get those funds at closing? If not, now you're eating them (or trying to argue with the tenant in court in a messy, paperless legal battle, where the judge may lean towards the tenant since the landlord has no paperwork to prove otherwise). 

Or when Unit B swears that she paid her September rent in advance back at the beginning of August and shows you a hand written receipt reflecting the same?

Tenant estoppels are so simple. They simply state the terms of the lease, the amount of the security deposit and any prepaid rent, and the current status of rent payments. And your title company is 100% correct in asking for them to make sure deposits and prepaid rents get transferred properly at closing. 

If you email me, I'll send you a blank tenant estoppel.

One glaring thing you might be missing is Where do you live now and how much are you paying?

If you are renting, then you are just building equity for your landlord, and that money could be put to better use as part of your own mortgage. 

If you are living somewhere for free, then keep doing that!

As far as the 1% rule, etc, I just read an article that addresses that head on (and backs it up with solid numbers) at https://www.biggerpockets.com/...

In it, @Dave Meyer states: 

For many years a lot of investors subscribed to something known as the 1% rule. It basically stated that any deal you pursue should have an RTP above 1%. Furthermore, some people only want to invest in markets where the average RTP is 1%. Personally, I don’t subscribe to this rule for a few reasons.

1. It was developed over a decade ago during the cashflow outlier period I mentioned above. It was realistic back then to find plenty of deals with an RTP over 1%. Now, it’s no longer a useful rule of thumb. You need to adjust to current-day market conditions, and religiously following the 1% rule is going to prevent you from getting in on deals that are very strong by today’s standards. Some of my best deals, even my highest cash-flowing deals, didn’t meet the 1% rule at the time of purchase.

I feel compelled to reiterate his point in bold above. I've been telling people for years that the 1% rule is not usually going to be relevant on the day you close on a deal. The real question is what do those numbers look like in year 2, 3, 4, 5, etc? What he refers to as RTP is not static - With capital improvements, better management, rent growth, etc, they should only improve over time.

And that doesn't even factor in debt paydown and tax savings.

This will vary for every person. 

The first questions is Do you need (and what else would you do with) the extra 5% capital if you kept it now? That will determine your opportunity cost. If it doesn't matter, or doesn't change anything for you, then it's not really a factor at all. 

In which case, you'd move on to calculating the monthly savings on the lower interest rate and determine how that changes your cash flow, etc. 

 I discuss this with each guest as one of the closing questions of almost every episode of my podcast.

I see continued growth in Florida barring any external factors that alter migration patterns. 

Do you have a question?

I agree caution is always warranted and it's useful to study market cycles. But I also know there is a very real opportunity cost to doing nothing. And if your plan is to do nothing while waiting for the Florida housing market to crash, you could be waiting a very long time. 

Prices will come down in Florida when housing supply catches up with housing demand, period. 

The "driving around" approach can be tough because not all vacant lots have physical mailing addresses. You may have to cross-reference the map location using the Santa Rosa County property appraiser's website. And yes, then you would contact the owner and ask them if they have any interest in selling. 

Here's a template you can use free of charge:

"Dear _____,

We may be interested in purchasing your vacant lot at ________. Please let me know if you have any interest in selling this property or others in the area.

Thanks,"

You can also work with a local realtor on a search for vacant land listings, but of course this will only get you the "on-market" inventory, not the "off-market" possibilities. 

We have seen 20% + year over year appreciation in most Florida markets for several years now. For a deeper dive into the stats for Pinellas County, for example, see https://pinellasrealtor.org/ma...

There's a lot of discussion about just how much "runway" is left, but there are still a lot of prime factors (namely population growth, demand, and limited supply) putting upward pressure on prices. 

Most financing in real estate works more or less the same way. Whether it's conventional, commercial, private, hard money, or seller financing, the paperwork and terms are generally spelled out in a mortgage and a promissory note (see: https://www.biggerpockets.com/... for a deeper dive). 

That being said, most real estate loans are somewhere between 50% and 80% loan-to-value, meaning the lender wants you to have skin in the game. Using 75% LTV as an example: The lender puts up 75%, and they expect you to put up 25% (as well as have sufficient income from the property, income from other sources, cash reserves, and good credit). 

There's not a lot of appetite for "loaning you the down payment" from most lenders. Perhaps friends and family...but keep reading. 

If you don't have any capital (not even then down payment), it becomes much more difficult to buy real estate. I'm not saying it's impossible (there are books on the subject sold here on BP), but it is much more difficult. 

You might consider bringing in an equity partner (investor), rather than a debt partner (lender). That scenario might look more like the following:

You (Partner A) bring the expertise, time, and hands on management to the table.

Partner B brings capital (cash money, assets, credit history, etc) to the table. 

The two of you form a partnership. This can be structured any number of ways, but let's call it A&B Partners LLC, and let's say it's set up with you as a 30% partner and B as a 70% partner. 

Your LLC buy's a $1M building. Your LLC owns the building. You own 30% of the LLC.

The LLC's operating agreement will dictate how monthly and annual cash flow and distributions, asset disposal, etc are handled. To keep things simple, it might say "all profit is split 70/30, with an quarterly distribution, and all capital gains are split 70/30".

So each partner would get a quarterly distribution based on net profit. And when you sell the asset 5 years later for $2M, you'd take a $300k gain, and B would take a $700k gain (of the $1M capital gain...$2M sale less the $1M basis). 

In this scenario, B is not getting "paid back". Rather, he or she is an equity partner and benefits (in the form of quarterly distributions and a nice capital gain) from you doing the leg work on the property. 

If you won the lottery and wanted to buy out B, you could purchase all or part of their share and increase your ownership percentage. 

It depends whether she had a will (in which case you could buy it from whoever inherited it) or died intestate (in which case it would have to go through probate, which takes much longer). 

A local probate attorney could help you figure it out.