1st Investment, Problems a brewing

25 Replies

So, I closed on my first property in Chicago in August. It is a 2-flat remodeled in 2016. Long story short, the heat went out on the first floor last night (was about 12-15 degrees). Tenants were fine luckily but fast forward to today, a water pipe burst in the wall where the bathrooms are connected. Water shut off.

I just found out front the tenant on the top floor that this apparently happened twice last winter to the lower floor and why the last tenants moved out.

Two questions:

1. As a landlord, should I consider giving them a break on rent for days lost to this (currently 3 days)?

2. Would you dump money in to attempt to correct it permanently or cut losses and try to sell? It flows about $800/m ($400/door).

New investor here so happy to hear your thoughts. Thank you.

Yeah - give them a break on rent as an act of goodwill. Then after the plumbing repairs are made I would have the pipe insulated (ask the plumber what he recommends). 

Since it's not inside the wall heat tape isn't an option and I don't consider that an option long-term anyways. 

I had this issue (the pipe never burst but they had a history of freezing). 

I removed the enclosed porch screen door and installed a more substantial door (as the porch wall was one the exterior walls to the pipe). I also had my handyman remove the old insulation around the pipe and wrap it with new insulation. 

Both updates helped and the pipes never froze again. 

Updated 8 months ago

I made a typo. It should read: Since it's inside the wall heat tape isn't an option and I don't consider that an option long-term anyways.

Tom congrats on your first property. Sorry to hear about the water pipe burst. First thing is to try to get your tenants back on track. Their safety is your first priority.  I think your suggestion of a credit on a few days rent is a gesture that may get them to stick around and if they are paying...keeping the money rolling in is important.  

I had frozen pipes in the first rental property I purchased in 2013. And not the first time it had happened when it happened there either...my issue ended up being due to a poorly insulated area in a difficult to reach part of the attic. I would get a plumber in their pronto to fix the break in your water lines making sure everything is dry as possible so you don't end up with a mold problem. Next I would call a contractor to fix the cosmetic damage. My plumber was able to tell me where he thought the cold exposure was coming from. Based on what your/your plumbers research yields of where and due to what the cold exposure is coming from you should ask your contractor to help re-mediate the cold exposure.  I would try to do this quickly to disrupt the tenants the least. 

This is a small set back and no reason to sell. It may cut into your profits a little bit but hopefully you have been putting 5% or more aside for repairs. Long term you will reflect back on this as a blip on the screen. The first year of investing is a big learning curve. If real estate investing was easy, everyone would be doing it! Good luck!

Stuff happens.  It sucks, but you deal with it.  You are right to give them a couple of days' credit.  Figure out how much it will cost to have things replaced and something done, so the plumbing doesn't freeze again.

@Tom Carmody

If you’re gonna fix it, fix it correctly/ permanently. Unless you want this phone call again..? Prevention is preferable over solution. I would likely give them a break in the form of a gift card to a decent restaurant. “Sorry for the hassle, night out on me” is likely something they’ve never seen before.

It's very common to buy a property and then have a major, unexpected problem within the first few months. Welcome to the club!

When you say it "flows" $800 a month are you talking about cash left over after paying mortgage, taxes, insurance, and setting aside a percentage for repairs, capex, vacancy, etc? If so, I would highly recommend you keep it. Anything over $200 per unit is a pretty good return.

Selling it would probably be a loss. I would keep it and let the cash flow pay for the repair. Make sure it's fixed permanently so you never have this issue again.

As for reimbursing the tenants, that's a personal call. You're not at fault and your mortgage lender isn't going to offer you a discount so there's no obligation to discount the tenant. At the same time, you can have a heart.

@Tom Carmody in my opinion selling it as is should not be an option, because you will definitely have to discount the property much more than the repair will cost, just to get rid of it. If you want away from this property it needs to be repaired before attempting to sell it. Sounds like, after repairs, it will become the investment property you thought you were buying originally and there will be no need to get rid of it. If you do sell, replace it quickly and dont let this setback discourage you from your goal.

@Tom Carmody go ahead and put the money in to correct the problem. It is going to have to be corrected anyway. The tenants will be thankful that you take care of the property and you will have bettered your position for increasing rent later on.

@Karl B. Thanks for your reply and I’ll be sure to look into all of this. Good news is I have some good people around me and plumbers on the way today (less than 24 hours) and hope to the tenants back to normal ASAP.

@Amy Barriault thanks for your input! I am setting aside money and will give them a break. I luckily have plumbers and a contractor coming over today. I am trying to get everything dried up as well so I don’t get mold. This is very helpful and thanks again.

@Nathan G. I am lucky and it is actually flowing $960 before I take out for capex. I actually have an account where I touch nothing but I should probably account for more to be safe. I’ve had a similar issue when I was renting and received a break so I will probably return the favor and have a heart. Really appreciate the info and everyone talking me off he ledge. I hoping that scraped my knee early in the game and will take it as a learning lesson. Again, thanks to all who took the time to comment!

@Chris Myers very great point and thank you. I guess when the mess was happening, I didn’t think of it that way and then I heard it happened twice last winter and freaked me out. I have some guys looking at it now and figured where to insulate everything. I guess it costs money to make money. Thanks again.

@Tom Carmody - Super sorry to hear the issues going on with your first investment property.  The good news is once you get through all this it should hopefully only get better, so stick with it!  There is a lot of "it depends" answers with your issues.  Personally, I would want to get to the bottom of the issue and get it fixed right.  

Also, if it's a good property in a good location I don't' think selling will be a good idea.  Plus, now that you know about the leak, you would have to disclose it on the seller's disclosure, not to mention the discount you'll have to give to sell it.

Why did it take 3 days to get the furnace fixed, you may want to give them a small discount for the delay.  If you need some help with any of the maintenance items PM me and I can get you some good referrals.

@Jonathan Klemm understood and thanks. My apologies.... the furnace was fixed in 1 day but the ongoing issue was due to the pipe breaking so I meant 3 total days without either heat and/or plumbing. Found out that the HVAC condensation tube was running to the outside gutter drain (previous owner did this) and unsure why this didn’t show on my inspection report... so, the pipe froze and backed up moisture causing the electric pilot to burnout. That’s corrected but now have to drill a hole to run the drip to an inside drain. Not super pricey with my guy luckily. Plumbing is fixed but working to get it all properly insulated now. It all could’ve been much worse but got the water shut off really fast luckily!

Do not sell that property . Dealing with deferred maintenance for the first year is just right of passage . Don’t sweat it keep your head down and keep moving ahead . Sometimes it’s only an inch at a time but keep moving

@Tom Carmody ,

I came up with a new saying for landlords... "When it rains, it Hurricanes!" --- and it's true, stuff will break at the worst time, your problem sucks, but could be 100x worse!  Have you contractor determine what needs to be invested to provide a long term fix, so you don't have to worry about this in the future.     I normally give myself about 5-minute to be super pissed off, but then you pay for it-- and move on.   New stuff will break and overshadow this event, promise! 

Also, I would absolutely give them a few days off, it will show a lot of character/goodwill.

@Tom Carmody I had a pipe burst in my house and the plumber suggested I put vents every 3 feet in the wall so we could get heat in the wall to prevent the pipes from freezing. It was that or rip out the wall to insulate the pipes which would have been a huge investment. Never froze again.

Yes, give the tenants a break on rent. Great relationship builder hopefully loyalty as well!

Make it a great day and hope it helps!

i would recommend giving tenant a rebate in good will. Also you do not want them calling the city to complain or will have much larger and more expensive problem.

Depending on neighborhood Chicago is seeing massive appreciation I would fix it and hold property. As mentioned above lots of times you need to do some repairs on new buys it's not the worst thing as will have it repaired right for rest of your ownership.

@Tom Carmody

No. Dont sell. This is a minor set back in the grand scheme of things. Get the plumber in there and fix it the right way and move on. Also the credit idea is really gracious of you. Good vibes your way and congrats on your first rental!

Making $800 net a month? Give me the address, I'll come buy it, no agents, distressed, I'm gonna get a great deal and you'll have an easy out. Sound good to you?

Seriously though, keep it, fix it right, comp the tenants a dinner and a movie or something to thank them for their patience, then kick back and count the dollars coming in. 

But I can be there in 5 hours, too.  

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