Financial Advisor · Olathe, KS · Member since 2022 · 36 posts · 9 votes
My rental property is on it's first month of lease. I've spent close to $30k renovating it, and it looks great! Numbers are great too, as of now. However, an issue arose that I haven't had with the property until just this month. I believe the foundation just happened to hit its tipping point this month, so the basement has started to have water seep in through the cracks. The tenant is obviously not happy about this as the basement currently has carpet. I foresee having to redo the electrical system at some in the next five years, and that's something I was prepared for, but the foundation starting to leak is not something I was prepared for.
I am not in the financial position to do foundation repairs at the moment. I'm already paying off $16k of debt for the repairs on this house, and a foundation sump pump will add AT LEAST another $10k to that debt. If I were to take out that loan to fix the foundation, it would take most of the remaining cashflow away since I'm already using part of it to pay off the $16k. This would leave me with very little cashflow to replenish the reserves for this house.
My question and what I need guidance with is: Would it be best at this point to just sell the house and possibly break even, or should I take the loan and bear the next three to five years of paying it off? The reason I don't want to sell is that I've spent 15 months renovating this place, and my mortgage rate is 5%, an interest rate that is unlikely to happen again for many years.
Investor · FL · Member since 2023 · 33 posts · 10 votes
2y
Interest rates don't seem to be going down as of right now so selling isn't particularly ideal however if your main priority is to get out of the hole then you may just have to. I'm a part of a construction company that I can put you in touch with to see if they can be of some help if that suits you.
Realtor · San Antonio, TX · Member since 2023 · 272 posts · 42 votes
2y
If your intent is to not sell and continue to hold, then I would look for making the tenant as happy as possible. I am not 100% sure what your relationship to your tenant is, but if they are the type where they understand you would have to take on the burden of the additional cost in necessary repairs, and they feel they can continue to be a long-term tenant because you are helping them, then on the bright side at least you will still have rental money coming in.
But help me help you dissect your situation:
You've already done $30k rehab, and already informed at least $10k debt addition highly probable. How much are you currently cash flowing ? What is dollar amount still cash flowing if you actually do the repairs?
Dependent on the lease contract, of course; have the tenants expressed readiness to leave if you don't fix the problem? If so, what date will they press to leave your property? How much will they pay you to leave your property?
Your mortgage rate at 5% currently, what type of loan is this? Was this through credit union or bank? How much do you still have owed on paying off the house right now?
DM me your details and reply here. I am confident you will get various responses before New Years. Now is the time to take a knee and re-assess, mitigate your risk. Start planning for first quarter 2024 right now.
This doesn't sound like a foundation issue. Foundations are not boats meant to be water tight. Most of the work to keep basements dry is done outside the foundation with drainage and grading.
If you have foundation cracks leaking water visibly that can be addressed with things like hydraulic cement, but concrete is porous and you still won't be keeping all water out.
I would look to address any issues I can outside with gutters, grading, drainage, etc and then inside with things like hydraulic cement, a sump pump, or perimeter basement drainage system.
If your intent is to not sell and continue to hold, then I would look for making the tenant as happy as possible. I am not 100% sure what your relationship to your tenant is, but if they are the type where they understand you would have to take on the burden of the additional cost in necessary repairs, and they feel they can continue to be a long-term tenant because you are helping them, then on the bright side at least you will still have rental money coming in.
But help me help you dissect your situation:
You've already done $30k rehab, and already informed at least $10k debt addition highly probable. How much are you currently cash flowing ? What is dollar amount still cash flowing if you actually do the repairs?
Dependent on the lease contract, of course; have the tenants expressed readiness to leave if you don't fix the problem? If so, what date will they press to leave your property? How much will they pay you to leave your property?
Your mortgage rate at 5% currently, what type of loan is this? Was this through credit union or bank? How much do you still have owed on paying off the house right now?
DM me your details and reply here. I am confident you will get various responses before New Years. Now is the time to take a knee and re-assess, mitigate your risk. Start planning for first quarter 2024 right now.
First off, yes! This is 100% a property I was planning on keeping long-term as a buy-and-hold asset. Which is why I'm so tempted to get the loan, since 2 to 3 years are nothing compared to the rest of my life. Here are my numbers: Cashflow: $578.54 (this excludes the payments to the current debt, which is on 0% interest for 15 more months) - Paying $200/mo as minimum payments, and I estimate to have personal reserves to pay off this debt at the end of the 15 month period so it doesn't accrue any interest. - That leaves me with $378.54/mo cashflow right now. I don't have the number in front of me, but if I take the loan for the sump pump, it was roughly $325/mo for the monthly payment.
The tenant and I have a good relationship. I was upfront with her and told her this was something I was not prepared for and would have to do a bit of digging for a solution. I told her that I'd understand if this was something she didn't want to deal with and preferred to leave. She told me she would let me know if that would be the course she takes, but no timeline yet. If she leaves before the lease term ends, I would keep the $1400 deposit. Since this is an issue on my end for foundation, I don't think it would pass for me to have a certain amount of payments given to me (other than the deposit) if she chooses to leave.
The mortgage is 5.375%. It's with a Financial Institution called Specialized Loan Servicing (SLS). I put a 5% down payment on the house as a primary residence, which is how I was able to work on it for 15 months. - Purchase price $125.9k - Remaining Balance: $117,673.11 - ARV: Not sure on this one since I haven't had any appraisals, but without accounting for any repairs on the house, the value went up to $132k over the 15 months.
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
Interest rates don't seem to be going down as of right now so selling isn't particularly ideal however if your main priority is to get out of the hole then you may just have to. I'm a part of a construction company that I can put you in touch with to see if they can be of some help if that suits you.
Thank you! I would definitely be interested. Could they work in the Kansas City, Missouri area? Selling isn't the course of action I'd like to take at all, it's more of a last resort. I can get out of the current debt in the next 15 months, but adding $10k will keep me in the debt hole for longer.
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
On those old homes I would never finish the basement because water is bound to get in. How much of the basement is finished? Those stone foundations are solid but need sealed constantly. I would lean towards selling because there will be more repairs that pop up and you need to have the capital to fix issues that will come up. Do you have any reserves left for this property?
This doesn't sound like a foundation issue. Foundations are not boats meant to be water tight. Most of the work to keep basements dry is done outside the foundation with drainage and grading.
If you have foundation cracks leaking water visibly that can be addressed with things like hydraulic cement, but concrete is porous and you still won't be keeping all water out.
I would look to address any issues I can outside with gutters, grading, drainage, etc and then inside with things like hydraulic cement, a sump pump, or perimeter basement drainage system.
Thank you, Kevin.
I do plan on addressing issues to water-proof the house. However, I'm not sure if taking on that cost is worth it, or if selling it would be the better option.
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
On those old homes I would never finish the basement because water is bound to get in. How much of the basement is finished? Those stone foundations are solid but need sealed constantly. I would lean towards selling because there will be more repairs that pop up and you need to have the capital to fix issues that will come up. Do you have any reserves left for this property?
The basement is actually the only part of the house I haven't touched; it was already finished on the house when I purchased it. But then my question is, if every older house with a stone foundation will always have to be water seeping in, is just something that has to be constantly dealt with? How do other successful investors get away with renting older houses if this is always an issue? Sadly, I don't have any more reserves for this house, the cashflow was supposed to be how I would replenish that.
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
On those old homes I would never finish the basement because water is bound to get in. How much of the basement is finished? Those stone foundations are solid but need sealed constantly. I would lean towards selling because there will be more repairs that pop up and you need to have the capital to fix issues that will come up. Do you have any reserves left for this property?
The basement is actually the only part of the house I haven't touched; it was already finished on the house when I purchased it. But then my question is, if every older house with a stone foundation will always have to be water seeping in, is just something that has to be constantly dealt with? How do other successful investors get away with renting older houses if this is always an issue? Sadly, I don't have any more reserves for this house, the cashflow was supposed to be how I would replenish that.
I rarely see stone foundation homes with finished basements. Most investors don't with water coming in. Stone foundation structurally are sound but not waterproof. Sump pump will help and every few years you reseal the walls. I'd probably sell with no reserves, to me it's not worth the stress or risk. Regroup and retry. Maybe wait till Spring time to see where the market is
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
Nothing wrong with the house! A 100 year old house with a stone foundation was not meant to have a finished basement. So, the issue isn't the foundation, its whoever decided to finish the basement.
In addition, water coming up through the floor is normal unfortunately. A floor slab is poured after the foundation walls and there is often a seam at the perimeter at least plus concrete is porous so water will work its way through.
A sump pump and/or perimeter drain system sounds like it makes sense.
I don't know why you would think this is a reason to sell a house like this. This is a normal thing not even a "problem". The problem is that someone finished the basement when they should not have or at least should have taken some preparation steps and then finished it with the idea in mind that moisture could be an issue. Obviously, they did not since they used carpet.
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
On those old homes I would never finish the basement because water is bound to get in. How much of the basement is finished? Those stone foundations are solid but need sealed constantly. I would lean towards selling because there will be more repairs that pop up and you need to have the capital to fix issues that will come up. Do you have any reserves left for this property?
The basement is actually the only part of the house I haven't touched; it was already finished on the house when I purchased it. But then my question is, if every older house with a stone foundation will always have to be water seeping in, is just something that has to be constantly dealt with? How do other successful investors get away with renting older houses if this is always an issue? Sadly, I don't have any more reserves for this house, the cashflow was supposed to be how I would replenish that.
I rarely see stone foundation homes with finished basements. Most investors don't with water coming in. Stone foundation structurally are sound but not waterproof. Sump pump will help and every few years you reseal the walls. I'd probably sell with no reserves, to me it's not worth the stress or risk. Regroup and retry. Maybe wait till Spring time to see where the market is
With the original plan for this property being a long-term buy and hold asset, do you still think I should sell despite having an interest rate at 5% and very low chances of getting a rate like that on a different property in the future? Do you think the cons of dealing with the stone foundation outweigh the cons of selling right now?
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
Nothing wrong with the house! A 100 year old house with a stone foundation was not meant to have a finished basement. So, the issue isn't the foundation, its whoever decided to finish the basement.
In addition, water coming up through the floor is normal unfortunately. A floor slab is poured after the foundation walls and there is often a seam at the perimeter at least plus concrete is porous so water will work its way through.
A sump pump and/or perimeter drain system sounds like it makes sense.
I don't know why you would think this is a reason to sell a house like this. This is a normal thing not even a "problem". The problem is that someone finished the basement when they should not have or at least should have taken some preparation steps and then finished it with the idea in mind that moisture could be an issue. Obviously, they did not since they used carpet.
I appreciate and love that you point this out as not being a problem! Gives me hope that other investors are able to deal with this somehow. So do you think I should just keep the property, add the sump pump, and routinely waterproof the walls every few years? And if that's what I do, would I then un-finish the basement so that tenants are not trying to make it a living spot?
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
Nothing wrong with the house! A 100 year old house with a stone foundation was not meant to have a finished basement. So, the issue isn't the foundation, its whoever decided to finish the basement.
In addition, water coming up through the floor is normal unfortunately. A floor slab is poured after the foundation walls and there is often a seam at the perimeter at least plus concrete is porous so water will work its way through.
A sump pump and/or perimeter drain system sounds like it makes sense.
I don't know why you would think this is a reason to sell a house like this. This is a normal thing not even a "problem". The problem is that someone finished the basement when they should not have or at least should have taken some preparation steps and then finished it with the idea in mind that moisture could be an issue. Obviously, they did not since they used carpet.
I appreciate and love that you point this out as not being a problem! Gives me hope that other investors are able to deal with this somehow. So do you think I should just keep the property, add the sump pump, and routinely waterproof the walls every few years? And if that's what I do, would I then un-finish the basement so that tenants are not trying to make it a living spot?
Its hard for me to give specific advice, but this would not be a reason for me to give up on a property at all. This is something I would expect in an older home like this.
There is a WIDE range of levels where you can finish a basement to. I would look back at home to how someone 75 years ago would have addressed the basement if they wanted to make more use out of it. Old timers had a lot of common sense:
They might parge and paint the walls and paint the floors. So, you have a semi-finished look without having any surface that is easily damaged by some water. Adding a sump pump or perimeter drainage to keep out standing water would also make sense.
I might also not have a finished basement at all and just install a sump pump. It depends on what a tenant in that market might expect.
Is the water coming up through the floor or is it through the walls?
First you need to understand and analyze the situation. It’s rare for a home to not have a sump pump and then need one
Typically perimeter foundation drainage and grading (sloping towards house not away) are biggest issues with foundation leaks
Start with that and then determine cost.
Thank you for your reply!
It is coming in through the cracks in the floor. The house is over 100 years old, and it has a stone foundation which is why it has no sump pump. However, over the 15 moths I've had the house, I have not had this much water seep into the basement before. I had a foundation repair company look at this and they recommended a sump pump.
Nothing wrong with the house! A 100 year old house with a stone foundation was not meant to have a finished basement. So, the issue isn't the foundation, its whoever decided to finish the basement.
In addition, water coming up through the floor is normal unfortunately. A floor slab is poured after the foundation walls and there is often a seam at the perimeter at least plus concrete is porous so water will work its way through.
A sump pump and/or perimeter drain system sounds like it makes sense.
I don't know why you would think this is a reason to sell a house like this. This is a normal thing not even a "problem". The problem is that someone finished the basement when they should not have or at least should have taken some preparation steps and then finished it with the idea in mind that moisture could be an issue. Obviously, they did not since they used carpet.
I appreciate and love that you point this out as not being a problem! Gives me hope that other investors are able to deal with this somehow. So do you think I should just keep the property, add the sump pump, and routinely waterproof the walls every few years? And if that's what I do, would I then un-finish the basement so that tenants are not trying to make it a living spot?
Its hard for me to give specific advice, but this would not be a reason for me to give up on a property at all. This is something I would expect in an older home like this.
There is a WIDE range of levels where you can finish a basement to. I would look back at home to how someone 75 years ago would have addressed the basement if they wanted to make more use out of it. Old timers had a lot of common sense:
They might parge and paint the walls and paint the floors. So, you have a semi-finished look without having any surface that is easily damaged by some water. Adding a sump pump or perimeter drainage to keep out standing water would also make sense.
I might also not have a finished basement at all and just install a sump pump. It depends on what a tenant in that market might expect.
I truly appreciate this! And since this is a long-term buy and hold asset, even though it'll put me in debt for the next 2 to 3 years, it's worth it for me because it's a long term asset. I'll just need to save extra from my full time job to replenish the reserves, but over the long run, the property will generate more cash that what it's taking now. Would you agree?
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Misael Herrera Granados
Installing a sump pump may or may not work as typically under a slab you have stone and drainage pipe going to the sump pump around the basement perimeter
Make sure this works
Also it should not be $10k to install btw. That seems excessive.
Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
2y
You probably already know this, but make sure that downspouts direct rain away from the house. In my home, I had water coming in through the basement wall and floors. I extended the downspouts, and the prolem was solved.
Installing a sump pump may or may not work as typically under a slab you have stone and drainage pipe going to the sump pump around the basement perimeter
Make sure this works
Also it should not be $10k to install btw. That seems excessive.
I think you're right that a simple sump pit shouldn't cost anywhere near $10k, but that could be more in-line if they are doing a perimeter drain system cutting the slab all around the perimeter of the basement to bring water to a sump pit.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
Is your definition of cash low rent - PITI? As my numbers show that 50% rule would be -$124/month (so small negative cash flow) prior to $39k renovation cost. The 50% rule does include PM, but even if you are self managing, the managing requires work and warrants compensation.
If you sell there will be expenses of 6% to 10% assuming you use an agent.
If you keep, you have the expense of addressing the water seepage. As other posts indicate, I would start by making sure drainage is away from foundation including gutters and French drains. Ideally this addresses the problem, but if not be prepared for further effort/expense.
I suspect the purchase did not use conservative enough under writing. At this point I lean toward selling to obtain a better performing RE or invest in another asset. The goal is not to own RE, the goal is making money.
Investor · Newark, DE · Member since 2014 · 245 posts · 198 votes
2y
I bought several houses with finished basements. All the ones with drywall/carpet got ripped out and left unfinished - it is just a disaster waiting to happen. The only finished basement I left alone was done with solid wood plank walls and vinyl floors.
My leases state that "the lease does not guarantee dry basement". Take it or leave it. So far, no one has backed out of signing a lease because of it... And if there is water intrusion, I just point to the lease they signed, and advise them to go to their renter's insurance for anything they stored that got damaged by water. You don't have renter's insurance? That's on you, not me - my property insurance does not cover tenants' belongings.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
2y
We had one built in 1987 where the basement slab floor would constantly leak during after heavy rainfalls & constantly during the thaw. The poured cement walls were ok, it just seemed that the soil around the home would just hold the water.
It had a sump pump but I had to run the original 20ft drainage 75ft away from the home to alleviate any hydrostatic dampness still coming up through the floor. I also routed all the downspouts into that 75ft drainage. We had to run dehumidifiers constantly to avoid mold. There was no way that we could finish that basement unless we tore up the entire basement slab & redid it correctly. When the market peaked we sold it for way over asking.
Interest rates don't seem to be going down as of right now so selling isn't particularly ideal however if your main priority is to get out of the hole then you may just have to. I'm a part of a construction company that I can put you in touch with to see if they can be of some help if that suits you.
Thank you! I would definitely be interested. Could they work in the Kansas City, Missouri area? Selling isn't the course of action I'd like to take at all, it's more of a last resort. I can get out of the current debt in the next 15 months, but adding $10k will keep me in the debt hole for longer.
I'll call and ask my associate today! your situation does seem to be a sticky one and I want to be able to help out so I'll call and explain a little bit about your situation and we can go from there.
