Repair after repair after repair
Hi BP members,
My business partner and I, @Sean Edward O'Brien, recently purchased a buy and hold duplex in Kansas City, MO. The cash flow is "great" and the property easily satisfies the ever-so-important 1% rule. We have owned this property for about two months now and it's been nothing short of a steady stream of invoices from the property management company.
With that being said, we really have no idea what to do about it. Is it normal to have starting out repairs with a home that continues to eat away at our cash flow and reserve funds? Do we continue to fix these repairs as they come knowing that the tenants are still paying our mortgage? Do we sell and look for another place that doesn't require so many repairs?
We are lost and are looking for any and all strategies that you guys would recommend. Thanks a lot!
One unit for a short amount of time is so difficult, because you don't have the benefit of averages.
If they were empty and the PM is doing upgrades to attract higher rents, it is a good thing and should settle down. This is quite normal. If the units have been full and it is the tenants doing damage or having unreasonable expectations, that is a concern. If they are still cash flowing I would stick with it a few more months to see if it settles down.
I would show your financials to your PM and let them know your concerns. They can tell you what they foresee and know that you aren't a blank check.
I applaud you for taking the leap and beginning your real estate investing journey. I see you have already entered the learning phase.
In order to adequately answer your question, I personal would need to know the following:
- How old is the property and what is the unit mix?
- Did you have the property inspected by a reputable company before closing escrow and if so, what did they reveal?
- Where did you find this property management and how reputable are they?
- Are these repairs due to old age, negligent tenants or a passive property management company thats taking the easy way out?
- How long have the tenants been occupying this property?
Perhaps this can be an opportunity for a lot of out of state investors to learn something.
To your success!
Hello Kyle,
I've heard from several other investors that had similar issues with their management company. It seemed the most common reason for the numerous repair invoices was the managements lack of involvement with the property and tenants. They were only managing through there system and not communicating with the tenants on the actual issues, which some request are simple fixes and vendors aren't needed. Check your management agreement and see what your terms are regarding maintenance and see if you can be included in all communications going forward.
It's not unusual for properties that were recently rehabbed to have a lot of maintenance right out of the gates. This is because things are either missed, or items that appear to work on inspection are actually on the edge. Once those systems are actually stressed by having someone live there, they inevitably fail. So most rehabs have a lot of maintenance right afterward. That being said, if it it continues for much longer, you should probably start looking for a different management company.
@Kyle Burkhardtyou should ask to see before and after pictures of the repairs. You could also ask to see the invoices from the venders to make sure repairs were actually completed. A couple years ago , a property manager in St. Louis was stealing from investors when he said he had work done but actually no work was done and he kept the cash . Did you get an inspection completed before the purchase? If so , look at it to see what other items are old and might need work . Who knows maybe you will not need more work in the near future.
#2 Mobile Home Park Investing Contributor
- San Antonio, TX
@Kyle Burkhardt It's kind of hard to tell without seeing what needs to be done. The tenants in the properties can also be part of the problem if they don't like to take care of things. Many times, property management companies will just relay information to owners from tenants. It's very hard to find good property managers who are there to service your best interest. Good ones are really busy and may not always have time to assess the details on each and every unit. Good luck!
@Andrew Syrios brings up a lot of good points about recently rehabbed homes that have not been lived in for a while.
Are the issues you are experiencing minor plumbing related ones? Those are most common when a house that hasn't been lived in for a while becomes occupied.
This is why with our multi family flips here in CT we make sure to include in our rehab budget the clearing of drains and the testing of our showers/faucets. It is sort of like a stress test. It doesn't prevent 100% of the issues, but pretty close.
In general all tenants have what we call a "punch list" of things they hit you with to be looked at when they first move in. Most of the time it is them just making sure they won't be held responsible upon move out for things that are wrong. Definitely a pain, but part of the business.
Depends on what is being repaired....could be totally justified....could also be a PM and/or tenant that sees you as a pushover open checkbook that will pay to fix anything and everything that they request.....bottom line is that its not their $$....the PM often makes $$ on repairs, so why wouldn't they want to do them? Some tenants expect you to make the house their dream home and will request just about anything and once you open that door, the flood gates for other "repairs" is wide open
How did you find the property manager?
If you are new with this property manager, I'd suggest reviewing the work. They have been known to pad invoices. I had a PM company do a "rental ready", and after i went and took photos, almost 80% of what they claimed they did wasn't done, and the rest was done shabbily.
Been there, definitely. I would say, what are your goals for the property? If you are buy and hold focused with a 10-20yr horizon, a few initial repairs to get up and running, particularly in the first few months, would not surprise me. I bought a house that was just like you describe, repair after repair for what seemed like forever. In fact, after about six months things settled down and got more predictable. Also, remember, it’s ideally the tenant who is paying for the repairs, out of their rents, and hopefully you budgeted for plenty of repairs in the first few years. If not, this is your lesson. I’d let it ride for at least a year to see how things pan out, and sell if it’s truly a money pit. Consider it a learning experience and move on at that point. However, it may just be that the property had some issues that weren’t able to be identified until someone lived there, and now you’re going through the painful transition to making it a truly profitable, long term rental.
@Kyle Burkhardt or you purchased a bad flip. It is hard to know what is going on behind walls. I responded to your other post. Would you mind PMing me and telling me who did the rehab? I can help if I have more information.
Hi @Kyle Burkhardt would love to hear which PM company you are using. I am hoping to get started in KC this year as well but my biggest hurdle has been finding a reputable PM company. I have heard a lot of negative stories about many of the companies in the area. Unfortunately I fear many PM companies take advantage of newbie, out of state investors.
A lot of good answers so far. I would add that if it is the tenants being hard on the property or causing damage that you can definitely tell is their fault, (like holes in the wall, burns on the carpet, etc. ) I have started billing those things back to the tenants and fixing them now. Don't wait to take it out of their deposit especially if it is significant repairs are adding up where the deposit may not cover at the end of their lease.