Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
I had coffee recently with a retired real estate investor of 40 years. We talked about real estate cycles, flipping properties, the meltdown of 2008, and other things. He started telling me about some of his rehab houses, the ones who brought him the biggest surprises with regard to unforeseen repairs. He told me about tree roots in sewer lines, sinking foundations, and other big repairs to his rehab houses that cost him thousands of dollars. I asked him, ‘what was the biggest repair or replacement on any of your rehab houses that cost you the most money?’ His answer was a surprise to me.
“Realtor commissions have been by far my biggest expense in real estate investing,” he told me. When first time real estate investors are calculating their potential profits on a real estate flip, this is one expense that is most often taken for granted in calculating their final numbers.
If you are a real estate investor in either residential or commercial real estate, what has been your biggest expense in your career? Please share your story.
I would say that the biggest expense is vacancy. Not only do you not have rent coming in, but you now have expenses for utilities and grass or snow to pay for. You also have the time, expense, and aggrevation of showing the property to get it re-rented.
Maybe not the biggest but one of the most annoying, HVAC! This is one reason that I look for apartment buildings WITHOUT central air/heat pump. If tenants Pay for their own gas/electric heat, it takes this huge expense totally out of the equation for you.
I would say that the biggest expense is vacancy. Not only do you not have rent coming in, but you now have expenses for utilities and grass or snow to pay for. You also have the time, expense, and aggrevation of showing the property to get it re-rented.
Jon Klaus-smart guy....did you find it on the income stmt ;-)
A personal commercial loan guarantee, due to the market collapse and the property losing 70% of it value as the loan came due. Now that I really understand them, I don't know if I will ever sign another one. This will cause a serious reality check when a property drops from $4M to $700K and the loan is $1.8M. The number of zero's in a deal never bothered me until that moment.
from the property manager perspective, the biggest expense has been arrogance (vacancy). I have a lot of outside investors that require me to attain a certain rent that may be overpriced from anywhere from 50-200 a month.
After a while on the market, you're in the negative compared to renting it at the lower price. Most of my investors are out of town/country investors and it is hard to do my job if they won't listen to me.
The other biggest expense I see for owners is appliances. Most of my rental units come with appliances, but when they buy the property, they forget to check them and usually are scummy and not working. That expense can run 600$ for a stove/refrigeration combo, but since they don't plan on it, they freak out.
I know some LL's around here require the tenant provide their own appliances, but I could never find myself doing the same.
Whenever I price a unit/take picture(and check list of the property) I am upfront with my owners on the condition of the appliances. This makes for an easier transaction and less complaining when I use their reserve to get a tenant in.
Overall I have ran into few LL's that wanted to abandoned getting used appliances or new appliances, but I will cut them off on not representing them.
I run a tight, but fair ship and I am not afraid to lose an owner of shady tactics. Our reputations puts people in our units and I won't throw it away over cutting major corners.
The other expense I have seen creep up on owners (besides HVAC as was mentions) has been delinquent utility bills based off a previous tenant.
When our tenants rent a unit that requires then to pay utilities, we make sure the account is in their name before we transfer the key.
If they cant comply with that request, I wont rent to them