Deferred Maintenance – A Silent Cash Flow Killer

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Deferred Maintenance – the practice of postponing maintenance activities such as repairs on both real property  and personal property in order to save costs, meet budget funding levels, or realign available budget monies.

That is the definition of deferred maintenance according to Wikipedia.  My definition, as it relates to income producing investment properties, would be a little less subtle and much more emphatic.  If you defer maintenance to save dollars, you might as well place that money in a box next to your fireplace to use as future kindling.  Your cash flow is going up in smoke!

Deferred maintenance can be an absolute killer for an investor looking to build a reliable passive income.  What makes deferred maintenance particularly worrisome is when an investor purchases a property without knowing there is deferred maintenance and that puts future cash flow at considerable risk.  Two recent incidents brought this topic to the fore front and served as inspiration for this article.  One had nothing to do with real estate…but raised the term deferred maintenance in a whole new light for me.  The second was very related to real estate and spoke volumes of why there may be an epidemic of misinformation and likely lost cash flows to come.

Time for a check-up

I readily admit that what others view as intelligence on my part is often my having the fore-thought to surround myself with really good, smart people who give good advice.  So when I recently put off a visit for a check up with my doctor, it was my wife who, in here infinite wisdom, pointed out the error in my thinking.  Yes, she is smarter than me!  She used an analogy that, as a real estate investor, I would understand. I had used the excuse of having visited a minor med recently for a strep test.  While there, they did all the usual tests and the doctor and I had a good discussion about my over all fitness and after about a 15-minute visit, it ended with him declaring me fit as a fiddle – and the strep test was negative.

She immediately countered with a scenario from earlier in the year that involved  one of our properties.  She reminded me that I made four roof repairs to fix small leaks on one of our properties.  With the first leak, the roof should have been replaced, but I chose the low-cost repair.  By the time I had paid for four repairs, I could have replaced the roof and not had to worry about it for another 20 years.  With the 5th small leak, I did replace that roof and it cost me twice as much as it would have had I simply replaced it at the first sign of trouble.  She then asked me why I have all of the systems in my properties checked each year.  She wanted to know why I replace furnaces and AC units that look suspect instead of repairing and maintaining to get every last breath out of them.  She was right.  She reminded me that deferring maintenance on properties only led to higher costs in the future.  Why in the world would I defer maintenance on my body if I wouldn’t on my properties.  What would that cost be?

Getting Investment Property “Rent Ready”

We recently hosted a group of investors in our offices who were touring the country visiting good markets for purchasing cash flow properties.  This was a new phenomenon for us as we had never hosted foreign investors before and I have to admit, the stories we heard made us cringe.  By far the worst thing we heard from these investors was the explanation they received of the “American” way to invest.  They had been told that in America, we do not spend $1 dollar on maintenance or repair that we cannot recoup on rent.  It’s called getting the property “rent ready”.

So when the investors asked about the cracked electrical covers, they were told new plate covers would not lead to any additional rent.  When they asked about the missing handrails on the steps outside, they were told hand rails wouldn’t allow them to raise the rent.  When they asked about the dust and duct tape on the rusty furnace, they were assured that it had been serviced and it had plenty of years left.  No need to replace now, it will only lead to less cash flow!

I was appalled that anyone still thought this way and I zero in on the term “rent ready”.  I absolutely agree that there are different levels of renovation for a property that you want to retail to a new buyer and one that you want to hold for cash flow.  Overspending on the wrong items can set your return back, but should not eat into your monthly cash flow.  I am not referring to cosmetic cures to attract a buyer.  I am talking about big-ticket items such as roofs, furnaces, water heaters, electric panels and plumbing.  When I used Google to search the term “rent ready” and read the returns on the first page, I found multiple lists and none of them listed any of these areas.  They all say to clean the yard and that having your property smell nice is a good thing.  None of them say replacing an original roof on a 30-year-old property is a good idea or that replacing a rusty furnace held together by duct tape is a good idea, whether it lights or not!

These are the types of items that are easy to ignore and convince ourselves that a $200 repair bill is better than a $1,500 replacement.  But after paying 5 or 6 repair bills, which can make a full month’s cash flow disappear each time you get one, you are faced with the decision to replace.  That is when the real cost of deferring maintenance comes into play.  If you calculate the costs to maintain with the cost to replace, in many instances it could cost twice as much and often an entire year’s return can be lost.

Secure Your Cash Flow

If you are investing in real estate, it does not matter how you acquire it, make sure you have a plan in place to address the big-ticket items on a property.  If you are purchasing a property that someone else has renovated, pay attention to what has been repaired, what has been replaced and what has not been addressed.  If you cannot get that information, no matter how good the deal looks, you don’t have the info. you need to make a good decision.  If you are purchasing a property and looking for ways to make the deal stronger, cutting back on needed repairs and deferring maintenance is a sure-fire way to make that deal weaker not stronger.  These items will eventually need to be addressed and it costs a lot less to address them on the front end than it is on the back.

For those of you wondering, I was definitely swayed by her argument and have an appointment scheduled for a full check up after the first of the year.  I’m not willing to keep patching with minor med. visits!

Photo: Tony Alter

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.


  1. Chris,

    I learned early that investment of time, money and resources during the “rent ready” period is well worth it. The period when a tenant moves out and a new tenant moves in is also a good time to upgrade your properties. Take your 5% vacancy or when ever you property is not rented and use that time to your advantage.


    • Chris Clothier

      Frank –

      Great response and you are so right. A solid check up and addressing small issues early can prevent big issues later. One thing that often gets lost when talking about maintenance is the fact that a poorly maintained house will not stay occupied for long and will sit vacant for longer. Both are bad outcomes for investors who are looking for consistent and reliable returns on a property.

      Thank you for reading and commenting.


  2. Chris, you did a great job of summarizing my stance on deferred maintenance, but your miss the non-tangible side. Knowing that you’ve address deferred maintenance helps you look a potential tenant straight in the eye and helps your “feel” like you’re offering a quality service. I believe I close faster because I pass my tenants’ BS meters.

    Maybe I take things too personally, but I believe my rentals are a physical equivalent of me. You’re physician’s analogy with your rental properties was spot on!

    • Chris Clothier

      Al –

      That is a huge point! It’s about walking the walk and not just talking the talk! I really appreciate your response to the article. It sounds like you are the type of person that I would like to do business with.

      All the best,


  3. The title of your article says it all – Deferred Maintenance is a Cash Flow Killer. – Too many investors get lured into older properties with subpar renovations that look great on paper. What they don’t understand is that the projected cashflows will never materialize as money is continually lost on ongoing maintenance costs. – Great blog!

      • Chris Clothier

        Bilgefisher –

        Thanks for reading the blog and commenting. You and Ken are both spot on with your posts. I liked the terms you use in “preventative” and “corrective”. Those are good words for a new investor to understand.

        Again, thanks for posting.


    • Chris Clothier

      Ken –

      I really appreciate the reply to the blog article. Unfortunately, with so many REO’s out there that get banged up by the owners or have sat vacant and unattended to while the banks are figuring out what to do, the newer properties are just as bad as the old properties. Investors just have to be honest with the real costs of preparing a property as an investment and then be diligent about the upkeep.

      $1 saved today can cost $2 tomorrow.


    • Chris Clothier

      Rhein –

      I’m glad you like the post. My wife got a kick out of reading the article. But, it is so true. In my earlier posts I wrote about surrounding yourself with experienced investors and listening to their advice. There is a reason we call them experienced! In this scenario, an experienced investor can tell you how to dig a little deeper and account for the things we may overlook. It’s those overlooked expenses that can crush a good property down the line.

      Thanks for posting


  4. Another great blog Chris. I purchase duplexes in need of repair for the purpose of long term rentals. I had to work had to not focus on my yearly cashflow but look out a couple years and see the future cash flow potential if I do everything correctly now. I tell my management team at work that it is always better to do things now if poasible. Labor is availiable and most variable costs tend to go up with time. Effieciencies can be gained only when this job is done. I love seeing a prospective new place that needs windows or a furnace or siding. These problems show me dollar signs…. Long term, I can purchase with those defects discounted into the price, I will have to put more money in now to do these things but the savings to my tenants and to myself are great with insulated windows, insulating the walls when doing siding and the furnace. This is all nice and can help me make more money no matter who pays utilities. If average heating cost is $100/m and my improvements lower it to $50/m and the tenant pays, I can still charge an extra $40/m in rent and we both still win. Lastly it is so much easier to rent when things look nice and updated. The biggest part is telling a prospective tenant your story on the home. Tenants, in my experience, really like you hear that I put in new windows or new furnace or cleaned up the yard or upgraded to a new digital thermostat for that matter. Tenants then know that I am not afraid to spend money to improve things and also are much more accepting of future rent increases as they know I am involved not just collecting a check.

    For those with a short term focus on a property, i.e. flippers, they can actually save money or make more by deferring maintenance or doing a quick repair. This doesn’t work long as your sales are only as good as your last product. Having the integrity to do things right the first time will reap future rewards as well by having and maintaining a stellar reputation and earning the ever important word of mouth customer.

    • Chris Clothier

      Kyle –

      I really appreciate the time you took to post this on the article. Great thought process and some really good points. So often, it is details that make the difference in a great property and a good property. Those same details can take a good property to a negative cash flow money pit quickly.

      I look forward to your future comments! Best of luck as an investor and I am sure your duplex investing will continue to be successful.


  5. Excellent article! So very true, yet it goes so much deeper than that… may I please expand? You haven’t even touched on the disasterous and EXPENSIVE results of not addressing an issue that go well BEYOND just doing the patchwork and then having to do the repair anyway. What about the surrounding damage that results and must be repaired if a leak is not properly addressed? Water will KILL a home! It is its worst enemy! That unattended leak will lead to mold in the attic, the walls, etc. What is the cost of mold remediation? What is the cost of insulation replacement? Tearing down damaged plaster or sheetrock then replacing and painting? Replacing rotting walls, sheathing, joists, and sillplates? Nature is always looking to reclaim its space. Look at any abandoned property. It all starts with a drop of water! It’s not just spending $200 to avoid the $1,500 replacement… you will be avoiding the $15,000 rehab!
    What if the tenant isn’t diligent in reporting the issue and you thought you addressed it with the patch? You might not discover the vast damage until they move out. That could be years! Three years of leaking might cost you two years of rental income!

  6. I agree with most of what you have said, but want to play Devil’s advocate. I bought a 2 unit 8 years ago. It was in good shape, but the hot water heater looked old. I thought about replacing it, but decided not to. It still works!

    Bought a single family house 4 years ago. The furnace looked really bad. I had to have it certified for the village inspection. I sort of had to sweet talk the inspector into passing the furnace. It ran fine. No CO2 or cracks in the heat exchanger. It rattles a little when it comes on, so my renter put a piece of duct tape across it to stop the rattle. But it heats the home well in cold Chicago winters.

    Being a landlord, I talk to a lot of repair guys. Sometimes a hot water heater goes in 6 years, sometimes it lasts 18 years. Sometimes a furnace lasts 10 years, sometimes over 20 years. It is random.

    It is a fine line. Make your rentals clean and sharp. Give them curb appeal. Be absolutely sure they are safe ( stair rails, smoke and CO2 monitors, etc.) But don’t spend money you don’t have to! I am sure I will get a call someday about my hot water heater ( in the meantime, I have replaced 3 other HW heaters I installed new. ) I am sure the furnace will go eventually, but I have delayed the spending of a couple of thousand.

    • Chris Clothier

      Gary –

      Thanks so much for reading and taking the time to respond. Great post! I would venture a guess that for every story like yours there are a lot more who are not so fortunate. But, you are correct. You have to be smart and balanced if you want to be successful at owning long-term investment property.

      Thanks again for your response.

  7. Jeff Hug

    Great article Chris. On apartments what do you think about talking to existing property management and asking what kind of repairs/replacements have been done recently? Do you think that’s an acceptable practice, or in general do you think that conveys distrust and hurts negotiations?

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