New to Real Estate · Long Island · Member since 2021 · 55 posts · 19 votes
Hey everyone. I've had a duplex for the last 5 months in a C/C+ area. Original numbers and inspection report made it look like on paper that I would be cash flowing after raising rents to market rents but month after month so far, something maintenence wise comes up that leaves me in the red a few hundred a month after I calculate reserves, property management, etc. The market in the area has overall appreciated but I don't know if I can simply rely on appreciation to offset negative cash flow.
Should I sell with the appreciated price and use it as a learning experience before moving into an area that might have less maintenence issues or try and hold on to it?
@Michael Mackney 5 months is nothing and not long enough to know if you have a solid asset. The first year is always the thinnest and should get stronger each year. You need a full year of income and expenses to evaluate your property fully AND determine what moves you will make to improve your cash flow in year two. Real estate is a long term game.
Of course, in the end we all want cash flow to live on, but may not need it yet
As Brandon Turner or David Greene has said (probably both), don't judge the investment on the 1st year cash flow, it's generally not great. It can take awhile for the cash flow to develop.
Also, repairs & maintenance always end up higher than expected, you want to have a cash cushion (& preferribly lines of credit as well) to get you through times where the repairs are coming up often.
What city/county & state are you talking about? People often don't mention it, but to me it's an important part of the picture
The first property is always the toughest, but it's all a learning experience
This is the thing with RE...there isn't a right or wrong answer. There is only an answer that works best for you and an answer that works best for others.
I've built to rent before and over thee course of 5 years spent $150 total in repairs and maintenance. Nothing ever broke. No capex required. Over the course of 30 years that will start to change.
I've had rentals that were 10 years old when I bought them and they have cost me about $500/year on average in capex and maintenance.
I've also had rentals where it was NON STOP repairs month in and month out.
I would assess the condition of the property, get an inspector maybe and see what the future repair/capex on the property looks like.
Anyone that is screaming sell and go find a cash flowing market is probably either in a market that allows cash flow or has out of state investing dialed in. Maybe that doesn't work for you. Maybe you don't want to invest out of state, maybe you feel safer and better having the property driving distance to you? I don't know...
Everyone has different goals and criteria.
I can tell you now the people in my market in Nashville that bought homes for $60k 15 years ago did not cash flow. Now they are sitting on a gold mine. If the property didn't appreciate at all, and they had zero cash flow that entire time....then they had 15 years of debt paid down by someone else.
There isn't a right or wrong answer to your situation. Only a "what's best for you" answer.
"If the property didn't appreciate at all, and they had zero cash flow that entire time....then they had 15 years of debt paid down by someone else."
Where else can you get this from an investment? Real estate is a long game, and generally very forgiving of mistakes (that will occur with everyone, new or experienced).
Hey everyone. I've had a duplex for the last 5 months in a C/C+ area. Original numbers and inspection report made it look like on paper that I would be cash flowing after raising rents to market rents but month after month so far, something maintenence wise comes up that leaves me in the red a few hundred a month after I calculate reserves, property management, etc. The market in the area has overall appreciated but I don't know if I can simply rely on appreciation to offset negative cash flow.
Should I sell with the appreciated price and use it as a learning experience before moving into an area that might have less maintenence issues or try and hold on to it?
I believe that it all a matter of prespective and what was your starting point.
When you buy a vacant property you want to make sure that before you're renting it you'll approach and eliminate all of the potential issues that may come in the future, to be able to really rely on a cashflow with low chances of bad "surprises" like leaks or other repairs that needs to be done.
For example, if you buy a house with a 30 years old roof, you need to expect that either within a week a month or few years you'll have to put down about 10k to replace the roof. And this is something you can expect to happen and it's totally fine, as long as you negotiate it on the purchase price when you're buying the property and take in consideration thst the roof replacement is kind of part of your purchase price, you're calculating it into your costs in advance.
Obviously, if you didn't take it in consideration in advance it'll eat your entire annual rent cashflow or more.
So my bottom line is not to ignore potential issues that you can identify in advance like corroded copper pipes, old electric fuse box, old roof etc. Because then its not a questi9n of "if" you'll spend the money to replace them, the question is "when" and in what situation it is going to be.
I prefer to take care of these things in advance, BEFORE I'm occupying the property with a tenant, because no one likes the aggrevation and the pressure of taking an emergency repairs and it'll always cost you MORE than if you were doing it from the first place.
In regards to your current situation, if I was in your position (and I was couple of yimes until ive learened on the hard way) is to sell the property specially if you can take a profit from the sell and buy a better condition property next time, or buy a property in a bad condition but fix it up to a point that you'll know that your rent cashflow will be real and not just on the paper, specially if you're relying on a cashflow from only one property.
Today I own over 200 doors, I'm using this method and it make my managment life easier and cheaper, and matching my expectations for the rent cash flow that I'm expecting to get prior to the property purchase.
There is a process of trial and error which it's part of the game of being a landlord so don't feel bad about it at all.
@Michael Mackney five months is a small sample set and sometimes random circumstance just opens your wallet. Or sometimes it's the C tenants (things always seem to magically break).
If you've been paying out for capex and it's an older unit with a lot of original systems/materials then it's not going to get any better in the short term. This is one of the reasons that I prefer gutting a place before renting if possible. Using conservative maintenance, capex and vacancy estimates helps too.
Sometimes you just chalk it up to lesson learned and move on but that's hard to say without more info. What items have you been paying maintenance on? I know the island well. Where's the property?
The Grow Team4.824 Reviews