Tenant damage; low remodel bid; high remodel costs... Now what?

Member since 2019 · 15k+ posts · 11k+ votes

4y

If you sold it, what would you do with the money? How much would you cash flow if you kept it? those are the two biggest things. You have a low interest rate and if the cash flow is good, then I'd rent it BUT I would not hire that PM again

0 Reply

Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

4y

I’ve had properties TRASHED! And it hasn’t run me $20k. I don’t know how you spend $200k repairing a $200k home…

That being said. It sounds like it’s been a horrible rental. After 15 years a home you spent $200k to buy and $200k to repair is worth $400? So you’ve had zero appreciation in one of the greatest housing booms of all time? It’s time to sell and you can even sell tax free since you haven’t made any money.

Ps. Hopefully you’ve fled the PM that didn’t do any home inspections for 10 years. I’m sure you can’t sue them for failure to perform. But 10 years without 1 inspection? At least we hope there was never 1 inspection or maybe they should be liable. If they can’t spot $200k in damage.

10 Reply

Herman C.

Member since 2021 · 9 posts · 2 votes

4y

It’s a little too late now. I don’t know how big the house is and the extend of damage but the price seems high and the construction project wasn’t managed well. Sorry to hear about this.

To answer your question, I would rent it out instead of selling.

1 Reply

Bjorn AhlbladPro Member

Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes

4y

I did not read it all. PM's have no incentive to keep costs down. Mine said she inspected but did not-that was a terminal offense. PM's can be an essential asset, but like other service providers they cannot be left to their own devices for too long.

1 Reply

J. B.

OP

Member since 2022 · 9 posts · 1 vote

4y

Quote from @Theresa Harris:

If you sold it, what would you do with the money? How much would you cash flow if you kept it? those are the two biggest things. You have a low interest rate and if the cash flow is good, then I'd rent it BUT I would not hire that PM again

I'll start by replying to the most optimistic response so far. (That's just a little bit of humor, really.)

If I sold it, I'd use every bit of the money to pay off this equity loan, my credit cards, and the personal loan that all funded the remodel. Of course, I'd still probably come up short. But maybe I could break an even zero depending on how much these renovations have increased the value of the home.

If I kept it, my cash flow would be negative at least $800 per month, maybe more, depending on how quickly I want to pay down the additional debt. I really want to pay the debt down as quickly as possible before the 18-month and 24-month 0% financing and the several-year 2.75% financing come to an end. And, of course, get rid of the 6.2% personal loan.

0 Reply

J. B.

OP

Member since 2022 · 9 posts · 1 vote

4y

Quote from @Herman C.:

It’s a little too late now. I don’t know how big the house is and the extend of damage but the price seems high and the construction project wasn’t managed well. Sorry to hear about this.

To answer your question, I would rent it out instead of selling.

Hi, Herman,

Well, it's a one-story, 3-bedroom, 2-bath. The second bathroom was never properly done right from some previous owner anyway, so that had to be redone. Rot was found in some places in the home even in addition to the rotted kitchen floor. Electrical work was 25 grand. Heaters in the home weren't wired properly. I'm having every electrical outlet and switch replaced. Seemed prudent after 40+ years. The actual damage from the tenant was not devastating, but apparently the house needed this work after not being shown much TLC over the past several decades. I demoed the kitchen and am changing it into an open floor plan with the living and dining areas. Even the appraiser for the refinance noted that the house hadn't been updated. So, yes, I am doing things beyond just the basics. But the house needed improvement in order to get beyond the measly $1,300 rent.

The contractor has billed me 25 grand in profit and overhead charges so far (20% per the contract). And then about 14 grand has been billed in sales tax so far (greedy state). So before even getting to the actual costs of materials and labor, I've paid $40,000.

I'm tempted to move into the home myself because it will be so nice and rent out my own home, but I can't at the moment due to an unrelated responsibility that keeps me stuck living in my current home for an undetermined span of time still.

Through all of this, though, the main overarching disappointment and frustration is that this situation is detracting from my personal cash flow and preventing me from contributing my full potential to my retirement funds. And as a self-employed person, the tax deductions from those contributions are quite immense.

But, of course, I did buy the home with zero money down. And I am financing this entire remodel on credit, allowing me to avoid liquidating any other assets. So there is that. But I know that this whole scenario is not the way things should have been.

0 Reply

Henry T.

Member since 2022 · 1k+ posts · 1k+ votes

4y

Something is really wrong here. I know the details are scant, but it seems you're making some really poor choices. Who spends 200k on a rental remodel? Or, Is this Mara-lago and you're an ex-pres spending someone else's money? I wish I could offer some advice, but I'm kinda speechless.
All I can think of is the Badfinger song "Come and get it".

2 Reply

Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

4y

What state charges $14k in sales tax on $125k in work? ( $25k profit at 20% means $125k in work)

That’s an 11.2% sales tax assuming you were charged zero for labor. But most of the work you suggested should be 50% labor or more. So you’re paying 22% sales tax?

Either you have a bunch of your numbers wrong or you need to head to court.

Make it livable and sell. This PM should have said DAY 1. This is WAAY outside our scope of expertise.

1 Reply

J. B.

OP

Member since 2022 · 9 posts · 1 vote

4y

Quote from @Bill B.:

What state charges $14k in sales tax on $125k in work? ( $25k profit at 20% means $125k in work)

That’s an 11.2% sales tax assuming you were charged zero for labor. But most of the work you suggested should be 50% labor or more. So you’re paying 22% sales tax?

Either you have a bunch of your numbers wrong or you need to head to court.

Make it livable and sell. This PM should have said DAY 1. This is WAAY outside our scope of expertise.

Sales tax here is over 10%. And sales tax is applied to a contractor's labor, materials, everything. Total billings have been about $150,000 so far, so the numbers for the sales tax do line up. Not the best locale in which to do a remodel as far as that's concerned.

0 Reply

Joseph BeilkeBusiness Member

Real Estate Agent · Palm Coast, FL · Member since 2018 · 364 posts · 244 votes

4y

I have a rental in Baltimore, sounds to me my past tenant moved to your house after doing the same damage to mine. I was not able to do a full on Reno. Could the house use it sure but the ROI wasn't there. I fixed the holes, fix the rot, replaced flooring, added a new fence and deck. Painted inside and out and new appliances. The kitchen got sub par upgrade and repairs. I got new tenants that current pay a little below market, and haven't missed a payment in 4 years, just a few late. I have now replaced the roof and windows. Next year hopefully a new HVAC if I can keep the current one running. I'm into for about 15-20K over the past 4 years. Nothing went on credit.

Sounds like you over improved for the neighborhood and rental rate. I'd probably take a long look at the numbers, project out how much interest you will be paying over the next few years and talk with a local realtor and see what the house prices are doing in your area. Here in Palm Coast FL, I'm projecting a 10-15% price correction. That would put us inline with a 40 year over year 2.5% average going back to 1981.

If your find the the projected prices in your area are going to depress quickly, but rents are going to rise and if it is as nice as you say. I would set the rent high and find a tenant willing to pay it and take care of it and do my best to max out the ROI, if you can't justify one or get one to pay the amount needed, then Sell and Sell fast. Good Luck Bro!

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2 Reply

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

4y

As you discovered, 90% of the landlord experience hinges on quality tenant selection and placement.

I would sell before I put this all important tenant selection task in the hands of another PM, compensation of which is high and paid immediately without risk or consequence to the PM.

Self-manage effectively or sell.

3 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

4y

Quote from @J. B.:

Quote from @Theresa Harris:

If you sold it, what would you do with the money? How much would you cash flow if you kept it? those are the two biggest things. You have a low interest rate and if the cash flow is good, then I'd rent it BUT I would not hire that PM again

I'll start by replying to the most optimistic response so far. (That's just a little bit of humor, really.)

If I sold it, I'd use every bit of the money to pay off this equity loan, my credit cards, and the personal loan that all funded the remodel. Of course, I'd still probably come up short. But maybe I could break an even zero depending on how much these renovations have increased the value of the home.

If I kept it, my cash flow would be negative at least $800 per month, maybe more, depending on how quickly I want to pay down the additional debt. I really want to pay the debt down as quickly as possible before the 18-month and 24-month 0% financing and the several-year 2.75% financing come to an end. And, of course, get rid of the 6.2% personal loan.

Based on that, I'd sell it. I still think the costs they charged based on the damage you described is excessive. A $200K scope of work is more than replacing doors, painting and patching holes. The $200K is entirely an new kitchen and bathrooms, etc.

0 Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

4y

No time to read the entire thing, but I found your first problem: low standards.

You say every tenant has passed your screening, but they left damages. You need to tighten your standards and select better tenants. If you required a 600 credit score before, bump it to 650. Require a double deposit or first/last/deposit to mitigate risk. If damage is caused by animals, charge extra rent for each animal in high enough numbers that it mitigates your risk.

Don't keep repeating the same mistake. Take action to correct the problem.

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1 Reply

Craig Janet

Member since 2019 · 223 posts · 261 votes

4y

I don't want to pile it on you, but you made some really poor decisions on this rental. No way you should have dumped $200K into a $200K house. You would have been much better off selling it as is or just paying the minimum to make it ready. Now your out a year's rent, $200K and a lot if interest. I would sell it.

2 Reply

J. B.

OP

Member since 2022 · 9 posts · 1 vote

4y

Quote from @Joseph Beilke:

I have a rental in Baltimore, sounds to me my past tenant moved to your house after doing the same damage to mine. I was not able to do a full on Reno. Could the house use it sure but the ROI wasn't there. I fixed the holes, fix the rot, replaced flooring, added a new fence and deck. Painted inside and out and new appliances. The kitchen got sub par upgrade and repairs. I got new tenants that current pay a little below market, and haven't missed a payment in 4 years, just a few late. I have now replaced the roof and windows. Next year hopefully a new HVAC if I can keep the current one running. I'm into for about 15-20K over the past 4 years. Nothing went on credit.

Sounds like you over improved for the neighborhood and rental rate. I'd probably take a long look at the numbers, project out how much interest you will be paying over the next few years and talk with a local realtor and see what the house prices are doing in your area. Here in Palm Coast FL, I'm projecting a 10-15% price correction. That would put us inline with a 40 year over year 2.5% average going back to 1981.

If your find the the projected prices in your area are going to depress quickly, but rents are going to rise and if it is as nice as you say. I would set the rent high and find a tenant willing to pay it and take care of it and do my best to max out the ROI, if you can't justify one or get one to pay the amount needed, then Sell and Sell fast. Good Luck Bro!

Hi, Joseph.

Thanks for that detailed reply covering all those bases! I guess you could say I did overimprove. However, I had no idea that the costs would balloon the way they did. The project manager is supposed to be keeping things within budget, and I have raised it as a concern several times. But expenses just kept continuing. For example, the amount of labor cost for selections management (the person helping to choose materials that will function together) was only estimated at few hundred dollars, but it's added up to over six grand since they've been billing me dozens of hours at a time at $50 per hour. Even after nearly all selections have been made, they're still spending several hours per invoice just to update the job notebook, which I'm told is necessary for documenting and keeping records for the ongoing project.

With the rotted-out main kitchen cabinet, I just decided to replace them all. They were 40+ years old and I wanted them to match, obviously. The cost of the cabinets was actually decent considering they're the bulk of the kitchen renovation. But the cost to install them has added up to about 50 hours for a relatively small kitchen. Add in interior painting of the whole house (1,200 square feet) at 70 hours. All of this at $75 per hour. The most recent invoice was huge.

I could not tackle these tasks myself because I do work full-time for a living. But the cost of doing all this was way underestimated from the start. However, the home's interior and exterior were worn out. The space around the toilet in the master bathroom was so tight, it was practically unusable. I think an airplane's bathroom has more room around the commode. It was making the place undesirable in and of itself.

I'm someone who tries to look at the long-term picture. I just look forward to the day when the home will be owned free and clear. And I'm definitely going to watch the place like a hawk(!) from now on, even after I get a new and more reliable property manager. I will definitely look into what it could potentially sell for.

0 Reply

Joseph BeilkeBusiness Member

Real Estate Agent · Palm Coast, FL · Member since 2018 · 364 posts · 244 votes

4y

J.B

They saw you coming! Deep pockets and not willing to say no. I work as a Firefighter and a part owner of a Real estate brokerage. My wife and I manage our own properties and do a lot of the basic work ourself. You have to make time to save money and capitalize the ROI!

Lets do paint breakdown for example. We just painted 2 sides of a duplex, 1100 per side. 2200sqft total. Same color walls, one color only and white trim, we did not paint the doors. Bought 15 Gallons of sherwin-William Super paint, used about 12. All our properties in Florida have the same color walls, "Sea Salt". That left over paint can be use to touch up at any location to include our personal home, same for the white base. Three 5 gallon buckets cost us about $500, 3 gallons of white trim for $75, then spent another $125 on some new supplies. inside paint all in for $700. Took her and I 4 whole days to paint both units. Total man hours 64. If I paid myself $75 that would equal $4800.00 plus $700 in paint. Total $5500.00.

See what I'm getting at, you got took hard! They painted half the space as a pro if I had to guess more than twice as much.

I'm really not trying to rub this in but you just learn a very expensive lesson. This property will give you chest pain for many years to come and the memory of how it all went will haunt you.

It's time to sell.

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Sergey A. Petrov

Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes

4y

I think you overdid the remodel… was trying to somehow make it make sense but I can’t. Even if you spent $0 on maintenance, repairs and improvements over the course of the fifteen years you’ve owned it, the $200k project is essentially $13k/year (not even looking at inflation). With rents at $1,300/mo every penny you’ve collected in 15 years just went into this project. Forget insurance, taxes, utilities, mortgage interest, etc etc etc.

For today’s purposes, the property better be worth than what you paid for it plus $200k as that is the only thing that will make any sense. 15 years of appreciation should’ve more than doubled the value as it is.

I see only two options- sell for whatever you can get for it and hopefully just hopefully break even on a 15 year cycle (sounds unlikely) or give it another 15 year run if you can sustain it financially.

Unfortunately it sounds like, with this particular property, you’ve put yourself 15+ years back. You are young and additional 15 years doing it smarter should pay off. If it were me I’d learn from it and hold it. It doesn’t make sense to sell at a loss (remember the depreciation recapture, 15 years worth, on your taxes upon sale)

1 Reply

Matthew Irish-JonesBusiness Member

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

4y

Quote from @J. B.:

Age 40. Owner of a singe-family rental home

Purchase price 15 years ago: $200,000 (zero down payment)

Current value: $400,000+

Current mortgage: 20-year fixed with 19 years remaining @ 2.875%

Seeking advice and opinions to help me decide what to do. I've owned this rental home for 15 years. I started off renting out on my own and went through a few tenants over a few years. While every tenant passed the background and income verification, they all had issues at one time or another with late rent, sometimes for several months, the last of which I was in the process of evicting when I took advantage of a technical opportunity to get them out for good. At that point, I turned it over to a property manager, and they handled things for about the past decade.

Early last year, I refinanced the home into a 20-year mortgage (2.875%) and also took about $30,000 cash out for a personal expense. Little did I know what was in store a little later on!

The home had a long-term tenant paying $1,300/month, who last year in 2021 ended up claiming a supposed financial hardship due to COVID. They then moved away after having gone several months without paying rent due to the "COVID" excuse. When they left, the property manager showed me the home and the place looked like an absolute disaster.

The tenant had painted the walls without permission, and they painted right over the electrical outlets and allowed the paint to drip down over baseboards.

The tenant had allowed water to leak under the kitchen sink for an extended period of time and totally rotted out the cabinet and the floor beneath.

Every appliance (7 years old) was trashed: Nearly every handle was ripped off, dishwasher full of something disgusting that rendered it ruined, oven caked with burnt something or other, dryer broken.

Several holes were found in the walls. Holes in a couple of the doors.

They left so many of their possessions behind, including furniture, I think in total it must have filled a 20-cubic-yard dumpster.

Come to find out later, the tenant moved with their family into a whole new "dream" residence. I think the COVID excuse was just so they could skip paying rent and pocket the money to help with their moving expenses.

I later learned that the tenant had several unauthorized people living there, and they must have been renting out the garage as well.

As far as repairs over my entire 15-year ownership of this home, I have not really put much money into it. I painted the interior a couple times and painted the exterior once or twice. A new roof was put on perhaps six years ago. Between tenants, I recall replacing carpets and once replacing the vinyl flooring in the kitchen/dining areas. This was all work done by myself with help and wasn't really a professional, proper job but more to just get by.

So now in 2022, after the property manager shows me the condition of my house, I knew it was time to fix it up and do it right. I had an absolutely horrible time trying to even get bids to do the work. I was presented with a bit of about $110,000, which I thought was pretty good. That gave me confidence to even include some extra work that I thought should be done just for practicality's sake and weren't really 100% necessary. But the amount of the bid meant that I was willing to spend money on those little extra tasks since the overall bid was reasonable to me.

Well, the work of the contractors has been very good, I must say. And they are great to work with. They know how to do a proper job. However, one problem is that we're now nine months down the road, and the work is still going on. I'm out about one year of rental income so far. It's been a long process, but it's nearing the end.

The other problem -- and a big one -- is that the costs of this work are approaching double the initial bid! I'm almost certain we're going to hit $200,000 in total costs by the time this work is done. Certain costs were outrageously underestimated on the original bid -- so underestimated that we surpassed that category's budget in the first month. On some categories, what was estimated to be a few hundred dollars is now several thousand. And it was an item that should have been estimated much more accurately. The contractors also found electrical problems, which have ended up costing 20% of the initial bid but was something that was hardly even planned for. Now the newest surprise is that the exterior of the home needs serious work, and I'm waiting to hear a quote for that. Obviously the exterior is important and needs to be done right in order to protect the house from the elements, but it's yet another unexpected expense.

To fund this project: I contributed $10,000 cash. I took an equity line out on my own residence for $100,000 at 2.75% interest for a few years. I have funded $45,000 with 0% credit card offers for an 18- to 24-month term. Now to meet the rest of the expenses, I've taken out a $45,000 personal loan at 6.2%. I do have about $250,000 in a brokerage account, but I do not desire to liquidate that account. Retirement fund balances are about $1 million, and obviously I will not be accessing those.

Before this project started, I had zero credit card debt, the one 20-year rental property mortgage at 2.875%, and my own residence's 15-year mortgage at 2.5% with 30% loan to value on my own home.

So in a month or two from now, I will have a beautiful rental property worth 400 grand (hopefully more after all this work!), and I'll probably be able to get $2,000/month rent. Maybe more?

What upsets me is that the property manager wasn't doing regular walk-throughs of the property and wasn't protecting my home. The long-gone tenant will probably never pay anything even though they're being sent to collections. The timing of this whole thing means that I missed out on being able to take cash out during my refinance in order to fund this renovation and probably choose a 30-year mortgage instead of a 20-year mortgage. The bid from the contractor was obviously ridiculously low, but I'm so far into the work at this point that I just need to finish it and get the place rented. I'm also disgusted that the financing situation means that I am carrying so much revolving debt that is obviously going to pull money from my own personal cash flow every month for quite some time into the future. It's also hard for me to not have feelings of disgust that some new tenant is going to be living in this brand-spanking-newly-renovated home that's nicer than my own and that the money is going to be coming out of my own pocket that allows them to do so.

Honestly, though, this is not likely to break me. I still have a net worth that is many times over the average net worth for people my age. I will be able to make payments on this debt; it's just going to reduce the amount that I will be able to save in my retirement accounts until the debt is paid off.

So, in sum: Should I keep this rental house, get a reputable property manager, and just tough it out until the debt is paid off and one day the tenants over the years have paid for this house in full? This home is 40+ years old and was never updated before. I'm hopeful that these updates I'm making will last another 40 to 50 years. If I chose to sell, it would probably be about 40 grand in seller costs, which seems like a huge waste. Any input from the more experienced here would be appreciated.

Pretty ridiculous that your bid is double. 10% over is normal, 20% is a tough pill to swallow, but it happens, double the initial bid is ridiculous. Why did they miss so much on their initial walk through? Also, isn't your beef with the contractor and not the PM?

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Bonnie LowPro Member

Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes

4y

This is a bummer of a situation. And there's no point in anyone bashing you for "poor decisions." What's done is done and you're trying to figure out where to go next. Your numbers don't quite make sense to me, but even so, before I decided anything, I'd look into accelerating that debt payoff. I don't know if it would work in your situation but it's worth looking into. We are using it ourselves for our primary home and are going to use it for some of our rental properties as well once we get them properly structured. I'm referring to the Shred Method. Look it up. You can also find the founder of the Shred Method, Adam Carroll, on numerous podcasts. It's especially appealing for real estate investors and it sounds like it might help with your situation. Basically it's mortgage and/or other debt payoff in an accelerated fashion using either a HELOC or a LOC. It's worth looking into before you make any other decisions since you stated you're in a hurry to pay off the associated debt. Best of luck to you and I hope you're able to turn this bummer of a situation into something that actually works for you!

[email protected]

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James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

4y

Quote from @J. B.:

Quote from @Joseph Beilke:

I have a rental in Baltimore, sounds to me my past tenant moved to your house after doing the same damage to mine. I was not able to do a full on Reno. Could the house use it sure but the ROI wasn't there. I fixed the holes, fix the rot, replaced flooring, added a new fence and deck. Painted inside and out and new appliances. The kitchen got sub par upgrade and repairs. I got new tenants that current pay a little below market, and haven't missed a payment in 4 years, just a few late. I have now replaced the roof and windows. Next year hopefully a new HVAC if I can keep the current one running. I'm into for about 15-20K over the past 4 years. Nothing went on credit.

Sounds like you over improved for the neighborhood and rental rate. I'd probably take a long look at the numbers, project out how much interest you will be paying over the next few years and talk with a local realtor and see what the house prices are doing in your area. Here in Palm Coast FL, I'm projecting a 10-15% price correction. That would put us inline with a 40 year over year 2.5% average going back to 1981.

If your find the the projected prices in your area are going to depress quickly, but rents are going to rise and if it is as nice as you say. I would set the rent high and find a tenant willing to pay it and take care of it and do my best to max out the ROI, if you can't justify one or get one to pay the amount needed, then Sell and Sell fast. Good Luck Bro!

Hi, Joseph.

Thanks for that detailed reply covering all those bases! I guess you could say I did overimprove. However, I had no idea that the costs would balloon the way they did. The project manager is supposed to be keeping things within budget, and I have raised it as a concern several times. But expenses just kept continuing. For example, the amount of labor cost for selections management (the person helping to choose materials that will function together) was only estimated at few hundred dollars, but it's added up to over six grand since they've been billing me dozens of hours at a time at $50 per hour. Even after nearly all selections have been made, they're still spending several hours per invoice just to update the job notebook, which I'm told is necessary for documenting and keeping records for the ongoing project.

With the rotted-out main kitchen cabinet, I just decided to replace them all. They were 40+ years old and I wanted them to match, obviously. The cost of the cabinets was actually decent considering they're the bulk of the kitchen renovation. But the cost to install them has added up to about 50 hours for a relatively small kitchen. Add in interior painting of the whole house (1,200 square feet) at 70 hours. All of this at $75 per hour. The most recent invoice was huge.

I could not tackle these tasks myself because I do work full-time for a living. But the cost of doing all this was way underestimated from the start. However, the home's interior and exterior were worn out. The space around the toilet in the master bathroom was so tight, it was practically unusable. I think an airplane's bathroom has more room around the commode. It was making the place undesirable in and of itself.

I'm someone who tries to look at the long-term picture. I just look forward to the day when the home will be owned free and clear. And I'm definitely going to watch the place like a hawk(!) from now on, even after I get a new and more reliable property manager. I will definitely look into what it could potentially sell for.

This reply J.B. tells me your using a Design-Build firm to do the reno. This is a great choice, if you drive a lambo on the weekends or are worried what others will say about you at the boat club. I say this a the owner of a Design-Build firm. The structure is not made for doing a reno on a rental, full stop. On a reno for rental, you get bids, that you then require as a job contract pegging an exact job cost with an exact job scope, that scope will include an exact job schedule. The GC has costs over-runs, they are just that, the G.C.'s cost over-runs, not yours. Now, if out-of-scope items arise, like the electric, it's processed via a change order which again, has an exact defined $ amount, time etc..

In summary, your renovating way WAY wrong, you got a flame-thrower to start a webber grill. Yeah, things will get messy.

On the tenant experience side of things, I am confused why you choose such an over the top reno in a property that consistently has tenant struggles. Such history generally means location issues or serious mismanagement issues.

I hate to say it because you seem to be kind of on the ball, but it appears to me this is some significant defect in decision making capacity of things. Look, that's not a character flaw, it's a capability, experience and knowledge issue, nobody starts life knowing how to ride a bike, we all learn and it's a nasty painful process for most right. But it sounds like your still doing more falling then riding. I believe you'd be best served finding a partner, someone with the time, knowledge and savy to do it but under funded, I am betting they would have found a lot better ways to burn through that $200k and 9 months then this. Too often persons think a partner as taking away from things, well, here is an excellent example on how partnering can make a whole ton more then it costs, in saving from such items as this.

Given the performance history and your excessive leverage position, you gotta sell. Your now one disaster away from having to liquidate other positions to in-fill, that's very bad. If this had good performance history it could be argued there is some value there, it doesn't, your already expecting future losses and damage. No, get out when the getting is good and re-deploy what capital can be saved into a good performance asset.

2 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

4y

Quote from @Matthew Irish-Jones: