Strategies for turning an investment around...

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Strategies for turning an investment around...

Jake Isaac
Investor · Spanish Fork, UT · Member since 2015 · 15 posts · 4 votes

I'm sure a lot of you have been in my situation at one point in your investing careers. I own one rental property - a four plex - and I'm beginning to discover that I paid too much for it. It's not a dire situation yet, and I'm not ready to accept defeat because I know there is a way to turn this around and make it work. Do any of you fellow investors have suggestions for a strategy to help drastically reduce expenses?

Here are my facts: 

Gross rents: $2500 (625x4) The first one year lease expires in March '16 and I plan on raising rent by $70 on each unit within six months of that. New gross rents in one year: $2780

Fixed expenses: mortgage $1598, management $200, utilities $200

Things went well for the first two months of ownership. On advice from a "mentor" I calculated after mortgage expenses at 35%. Big mistake. After a roof repair and flood restoration within two months of each other I ended up with nearly $8,000 out of pocket because the rents hadn't been enough to cover those huge incidences. What was originally supposed to be $6000/year cash flow now look a like negative numbers. 

So, besides upping the rent next year and dropping the property manager when his contract expires next summer, what creative ways can I find of upping my income on the property and reducing expenses? 

I look forward to hearing about some experiences! Thank you BP community. 

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Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
10y
I hate to say this, but generally there are no cures when you overpay for a property. The old cliche "you make money when you buy" tends to be true. Too late for that now, so here are a few options you might have.... Refinance your existing mortgage to a lower rate and put more money down in order to lower payment. (If you can) Manage the property yourself Make the tenants pay for their utilities Monetize your units with laundry if they don't have them. Vending machines perhaps. These will probably not contribute much but it is an idea. Sell and move on The roof leak/repair should have been covered with the 50% rule. Half your cash flow will be used for capital upgrades, etc. You have spread yourself very thin, and I think the best thing to Do would either be refi or sell. Hope this somewhat helps. Good luck
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  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    10y
    I hate to say this, but generally there are no cures when you overpay for a property. The old cliche "you make money when you buy" tends to be true. Too late for that now, so here are a few options you might have.... Refinance your existing mortgage to a lower rate and put more money down in order to lower payment. (If you can) Manage the property yourself Make the tenants pay for their utilities Monetize your units with laundry if they don't have them. Vending machines perhaps. These will probably not contribute much but it is an idea. Sell and move on The roof leak/repair should have been covered with the 50% rule. Half your cash flow will be used for capital upgrades, etc. You have spread yourself very thin, and I think the best thing to Do would either be refi or sell. Hope this somewhat helps. Good luck
    1Reply
  • Carlos Enriquez
    Santa Rosa, CA · Member since 2015 · 191 posts · 75 votes
    10y

    If the current tenants balk at the rent increase when it occurs, you can let them go and accept new tenants with pets.  That will generate a little more income.

    Start charging for service calls that could have easily been handled by the tenants.

    Hopefully your property will have appreciated in value.

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  • Scott Lewis
    Developer / Investor · Denver, CO · Member since 2014 · 64 posts · 31 votes
    10y

    Hi Jake,

    Any chance you can change the investment? I dont know how much you put down, but you might be able to get a refi and renovate loan and renovate the units to make them nicer (i.e. higher rent) as well as potentially adding more units to the building if your zoning will allow it. 

    If you do the work yourself (using a GC) you might be able to force appreciate the property and if you can add two or four more units, you might be able to double your rent while adding a much less to your mortgage. 

    You'll have to check with a lender, but if it's four unit place it might qualify for FHA 203 funding. The caveat here is I dont know if you could use this loan to expand to a larger place and I'm not 100% positive you can use FHA for multi-unit that isnt your primary residence. In short, there are refi and renovate loan products out there that you could us. Also, if you expand past four units, you'll need commercial financing.

    Hope this helps.

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  • Matt Motil
    Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
    10y

    The suggestions you have received already will help. At the end of the day, if the property is in the black then you will be fine, you're just feeling the harsh reality of being investment poor and no emergency fund capital to weather the storm. Yes, you needed a roof, but you shouldn't need another one for 20 years. Hopefully you fixed whatever flood issue you had and you can move on without worrying about that kind of thing again. When we estimate reserved for repairs and cap ex we don't expect them to all come in on year one, but it happens. My thought is that if you implement the strategies that have been suggested you'll be ok in the long run.  

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  • Jake Isaac
    OP
    Investor · Spanish Fork, UT · Member since 2015 · 15 posts · 4 votes
    10y

    Thank you for the advice guys. Minus the roof repair, I'm actually about 2k positive cash flow after six months ownership. Nothing to go to Hawaii about...but enough to give me hope. I also predict that with depreciation deductions I can show a passive loss and get a refund on my 2015 taxes, which will boost the ROI. Do any of you have any success stories with showing a passive loss from rental properties?

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