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General Landlording & Rental Properties

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Erik Dofelmier
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Inspection Report and Must Dos with Established Tenants

Erik Dofelmier
Posted May 25 2023, 05:24

We recently went under contract on a as-is duplex with established tenants (they’ve been there 15 and 5 years respectively). During the initial walk through the house appeared to have great bones, but obviously needs updating and they don’t appear to have cleaned/maintained their living areas for quite some time.
We just got the inspection report back and there of course were some issues, but nothing to me seemed too serious (structural/roof/septic all ok). That being said, what would you consider must do repairs, and should do repairs with tenants that have lived in the situation for years? Some of the electrical was outdated, water heaters were rusted, and there were some issues with runoff that can be fixed with grading.  I’m with the argument of fix anything that will/could be a liability or more expensive down the road, whereas my spouse is more along the lines of  “they’ve lived in it for 15 years like this so let’s build up some cash and fix it within a year/later.”  I see her point, but at the same time I want to protect the investment from further deterioration. Thoughts?  

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Charles Carillo
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Charles Carillo
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Replied May 25 2023, 05:37

@Erik Dofelmier

It is great that you noticed these items during your inspection. I would make sure to put the funds aside for all of these repairs from the beginning but I probably won't fix them all right away. For example; if the hot water heater is in a basement or somewhere where it won't ruin your property if it leaks, I might push this replacement back until you have completed everything else or it becomes an issue. The first thing is to correct issues that are unsafe. Then I would continue to work through the other issues from most important to strictly cosmetic repairs.

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Andreas W.
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Andreas W.
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Replied May 25 2023, 11:44

If your think about repairs, you need to think in 2 categories. First, what is broken and concerns the tenant and the lease. If the water heater is rusty, it most likely still heats the water well and that is all it needs to do to fulfill your lease and make your tenant happy. Complaints about broken items should have been submitted by now. Second, what to repair or replace to keep future repair costs to a minimum. The rusty water heater might burst in a few years and create a flooding situation in the apartment. That gets expensive quickly despite insurance, and really creates unhappy tenants. You need to assess what to do. Sometimes it is obvious, sometimes it is guess work. In terms of a water heater, replacement costs are low compared to repair costs of a flooded apartment.

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Erik Dofelmier
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Erik Dofelmier
Replied May 25 2023, 16:52

Appreciate all the info. Fortunately, the water heaters are outside the house so flooding issues inside shouldn’t be an issue. It’s the old electrical boxes that has me concerned. Regardless, it’ll be on us as the house is as is. 

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Richard F.#1 Tenant Screening Contributor
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Richard F.#1 Tenant Screening Contributor
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Replied May 26 2023, 09:25
Aloha,

Based on your comments, I would be advising to Non-Renew one or both tenants with a 60 or 90 day notice, return their full deposit if they leave it broom clean, then update your electrical, plumbing, and complete the reno to attract top of market rents. Why limp along with ongoing "emergency" repairs for years at well below market with a property that is deteriorating more every day, when you can start fresh, get a great Tenant, and gain additional value with appreciation and a solid preventative maintenance plan.

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Erik Dofelmier
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Erik Dofelmier
Replied May 26 2023, 10:11
Quote from @Richard F.:
Aloha,

Based on your comments, I would be advising to Non-Renew one or both tenants with a 60 or 90 day notice, return their full deposit if they leave it broom clean, then update your electrical, plumbing, and complete the reno to attract top of market rents. Why limp along with ongoing "emergency" repairs for years at well below market with a property that is deteriorating more every day, when you can start fresh, get a great Tenant, and gain additional value with appreciation and a solid preventative maintenance plan.

Outstanding points which I’ve been considering too. One idea that was brought to me recently was to raise the rents to slightly below market value and assess. If the current tenants decide to stay without me having to renovate the place, then I have a great cash flowing property without having to spend 35-45K on a rehab.   If they don’t, then I rehab and then raise the rents and get better tenants in. Thanks!

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Matt Devincenzo
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Matt Devincenzo
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Replied May 26 2023, 11:34

What's the ultimate plan here, keep these tenants as long as possible or rehab and get new better tenants? If the former I'd look for anything that could be a true emergency or safety issues and address those. Beyond that I wouldn't so anything else now, and would plan for a larger rehab in a year or so when you've had a chance to assess and plan for the work etc. 

If I'm looking for the latter then unless I have leases to ride out, I'd simply terminate one or both tenants and address everything now. Obviously if there is a real safety issue I'd address it while still getting the tenants out as I never want to delay something that could cause harm...but the reality is it probably can wait two months until you do the other work after they are out. 'Outdated' electrical may be perfectly safe. Most home's electrical is 'outdated' due to the latest code revisions, so I wouldn't worry about it immediately unless it was one of the faulty panels known for fires etc. 

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Erik Dofelmier
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Erik Dofelmier
Replied May 26 2023, 13:09
Quote from @Matt Devincenzo:

What's the ultimate plan here, keep these tenants as long as possible or rehab and get new better tenants? If the former I'd look for anything that could be a true emergency or safety issues and address those. Beyond that I wouldn't so anything else now, and would plan for a larger rehab in a year or so when you've had a chance to assess and plan for the work etc. 

If I'm looking for the latter then unless I have leases to ride out, I'd simply terminate one or both tenants and address everything now. Obviously if there is a real safety issue I'd address it while still getting the tenants out as I never want to delay something that could cause harm...but the reality is it probably can wait two months until you do the other work after they are out. 'Outdated' electrical may be perfectly safe. Most home's electrical is 'outdated' due to the latest code revisions, so I wouldn't worry about it immediately unless it was one of the faulty panels known for fires etc. 

The ultimate plan is to try and cash flow as much as possible initially without coming out of pocket too much while building cash reserves. If that means I raise the rents, they still stay, and I can delay any significant fixes so be it. But if they leave then I’ll have the opportunity to rehab and start over with new tenants. 


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Matt Devincenzo
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Matt Devincenzo
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Replied May 26 2023, 13:21

Sounds to me like you address nothing for now unless it is a safety or possible emergency repair item. And on the emergency items I mean like I see the water heater is 25 years old and could go at any moment so I want to avoid an emergency repair. Nothing you originally mentioned sounded like a safety or emergency repair issue. Unless the electrical is actually a safety item, I'd leave 'outdated' electrical as is until you're actually rehab'ing. 

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Erik Dofelmier
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Erik Dofelmier
Replied May 26 2023, 13:54
Quote from @Matt Devincenzo:

Sounds to me like you address nothing for now unless it is a safety or possible emergency repair item. And on the emergency items I mean like I see the water heater is 25 years old and could go at any moment so I want to avoid an emergency repair. Nothing you originally mentioned sounded like a safety or emergency repair issue. Unless the electrical is actually a safety item, I'd leave 'outdated' electrical as is until you're actually rehab'ing. 

Perfect. Thanks for the advice!  

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Erik Dofelmier
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Erik Dofelmier
Replied May 30 2023, 11:27

One thing I forgot to include which may change some things, is I plan on using 20K of my HELOC for the initial down payment. Thus eventually making this a BRRRR. But I'm wondering if I should move into rehabbing it quickly so I can pay off the heloc.