New to Real Estate · Aubrey, TX · Member since 2019 · 11 posts · 12 votes
Hello all,
I have two rental properties in Wichita, KS; both are single family homes that should cash flow around $250 per month but the repairs and fixes that I have had to do over the past six months (and especially the last month) have just been destroying my cash flow. A few months ago I had to have a tree cut down at one property, which cost $1050, then this month I have had a frozen pipe at one house, a clogged main sewer line at the other, a broken refrigerator and an electrical issue. In total, I am looking at ~$750 in repairs this month alone!! Is this just part of the growing pains and part of the learning process to become a real estate investor or am I doing something wrong? Should I never buy houses that are built before 1970 again? Both of these houses were built in the 1950's and I wonder if maybe that is part of the issue.
New to Real Estate · Orange County, CA · Member since 2020 · 214 posts · 184 votes
5y
In your property's cash flow analysis you should always include some expenses to go towards vacancy, repairs and maintenance. Even though you won't have those cash outflows every month, you should always account for them. Are your total repairs for the year exceed the cash flow you are getting? If so, you might want to do some rehab work and raise rents to get higher cash flows or if you are in the minus for the year on cash flow, you might want to consider selling your properties or doing a 1031 exchange.
However, remember that with real estate there are a lot more perks than cash flow. There is appreciation, tax deductions, and principal reduction. You have to factor in those benefits as well. Even if you are breaking even on a property in terms of cash flow, you are getting so many additional benefits that in a few years you will become cash flow positive.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y
The age probably has something to do with it. Probably some deferred maintenance by a seller who knew he was selling and wouldn’t get more money if he fixed the problems first. People are buying those homes to live and so they’re paying the same repairs and they aren’t able to deduct them from their taxes like you will.
Hopefully the bleeding stops soon. At least it appears you bought near where you live so you should know the neighborhoods and likely expenses. (As opposed to someone from an area where everything is much newer and we don’t deal with weather.)
Keep track of your expenses and watch to see if hopefully they don’t decline after 6-12 months of ownership.
New to Real Estate · Orange County, CA · Member since 2020 · 214 posts · 184 votes
5y
In your property's cash flow analysis you should always include some expenses to go towards vacancy, repairs and maintenance. Even though you won't have those cash outflows every month, you should always account for them. Are your total repairs for the year exceed the cash flow you are getting? If so, you might want to do some rehab work and raise rents to get higher cash flows or if you are in the minus for the year on cash flow, you might want to consider selling your properties or doing a 1031 exchange.
However, remember that with real estate there are a lot more perks than cash flow. There is appreciation, tax deductions, and principal reduction. You have to factor in those benefits as well. Even if you are breaking even on a property in terms of cash flow, you are getting so many additional benefits that in a few years you will become cash flow positive.
Real Estate Agent · Denver, CO · Member since 2020 · 53 posts · 51 votes
5y
Bumps in the road my friend. Do you think the properties will be worth more money in 5, 10 years? Will rents go up as well? If you feel like that's the case and you can find a way to handle these bumps in the road, then ride it out!
Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
5y
In my experience these things come in waves, I had to replace a ac on one property and then a water line at another the next month which wiped about 1/3 of my cash flow for the year. Stuff like this happens and the older the house you buy the more you should prepare for capex. It's part of the business however you will also have years where you sit on the couch, everyone pays on time and you have no vacancy or repairs. Make sure you have a strong reserve fund and stay on top of it, you build it up for emergencies but when one comes you need to build it back. Also be sure you are shopping around 1050 for a single tree sounds absurd.
Rental Property Investor · Rochester, MN · Member since 2017 · 224 posts · 323 votes
5y
@Elijah White
Keep charging ahead man. Don’t let this slow you down. If anything, let it stoke your fire! When you have 200 units and your a wise old investor, you’ll look back with nostalgia at the days when you were just getting started. I’m just getting started myself. There are hard days, there are bad months, but I’ll power through. And so will you!
Investor · Rowlett, TX · Member since 2013 · 132 posts · 72 votes
5y
@Elijah White
This is why I don’t count too much on cash flow in my properties that are NOT short term rentals. I look more for appreciation, tax deductions, tax deferrals etc. I know this doesn’t work for everyone as some people need the cash flow, but you may shift your strategy in any future rentals you purchase. If I cash flow, great, if I don’t then as long as all my other targets are being met then I’m all good!
There good advice already given in this thread so I won’t offer much more than looking at it more than just a cash flow perspective.
I have two rental properties in Wichita, KS; both are single family homes that should cash flow around $250 per month but the repairs and fixes that I have had to do over the past six months (and especially the last month) have just been destroying my cash flow. A few months ago I had to have a tree cut down at one property, which cost $1050, then this month I have had a frozen pipe at one house, a clogged main sewer line at the other, a broken refrigerator and an electrical issue. In total, I am looking at ~$750 in repairs this month alone!! Is this just part of the growing pains and part of the learning process to become a real estate investor or am I doing something wrong? Should I never buy houses that are built before 1970 again? Both of these houses were built in the 1950's and I wonder if maybe that is part of the issue.
Thanks in advance for any advice!
I might recommend a 1031 exchange into a newer class of property. You will still make out really well it sounds like. You could keep looking on your area or look at KC (I am partial to it) for a bit more appreciation. How that helps!
In my experience these things come in waves, I had to replace a ac on one property and then a water line at another the next month which wiped about 1/3 of my cash flow for the year. Stuff like this happens and the older the house you buy the more you should prepare for capex. It's part of the business however you will also have years where you sit on the couch, everyone pays on time and you have no vacancy or repairs. Make sure you have a strong reserve fund and stay on top of it, you build it up for emergencies but when one comes you need to build it back. Also be sure you are shopping around 1050 for a single tree sounds absurd.
As the owner of a tree service, I can assure you that $1050 for a single tree may be high or may be an extremely good deal. Tree removal prices vary by the size, location and complexity of the take down. People can pay upwards of $10,000 to remove one tree, depending. So without knowing anything about the tree, it's not possible to know appropriate pricing.
Chicago, IL · Member since 2017 · 25 posts · 24 votes
5y
@Elijah White everything you named here are issues that will have to come up at some point. Every issue is a learning opportunity and an added point to having a plan to your future problems. All the problems you named are issues where you should not have to touch for the next ten years. Just have money one the side for other problems :)
Part of the fun no one talks about ! You can take 8% for caped which is 17.37$ and then the 4500 furnace dies lol owner financing is much better than rentals because you get to strip the equity , good cashflow , and no repairs or capex . Most cashflow is a fallacy long term because eventually the hvac dies or it needs a 8k roof or new carpeting etc . Do the math long term and you’ll realize it’s better to be the bank . An actual apartment house ,well that’s different
Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
5y
@Elijah White - This is the struggle. We try to make it a point to catch everything possible during due diligence and take care of as much cap ex as possible with financed money.
Yes, you can probably get another 2 years out of that furnace, but what happens when it goes down in the middle of winter? There's nothing more expensive than an emergency repair.
I'd rather make as many decisions as I can while there's not a gun to my head
Hallsville, MO · Member since 2018 · 6 posts · 4 votes
5y
@Elijah White
It’s the part of owning no one thinks about. I own 25 houses. All built 1950 and prior. Many things to learn about them such as knob and tub wiring(illegal) now and most insurances will not pay if find out.
Old sewer drain lines made from clay pipe to even tar paper. All need replaced. I take mine and spend money upfront to avoid monthly or continual repairs. But they still will happen.
I am fortunate. I own all mine in a town and have great tenants. I now have them managed for me as I am not close.
It is the growing pains and the side of the business most DONT think of and can handle
Good luck. Stand the test and the knowledge will come
When repairs happen, everything seems to go wrong at once. I had a fridge, washer/dryer and a dryer in 3 different rentals all go around the same time followed shortly after by an eviction in another place.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
5y
It always happens in (many multiples of ) 3's. This was my month so far all in completely rehabbed homes & apartments ....
We HAD to take down seven dead 50ft ash trees on a SFR $3600 as they were snapping 20ft up with high winds & way too close to the home. But that home cash flows $800/month & they now have a LOT of fire pit wood.
Had an ice dam build-up leak into an apartment that pays $975/month & are great tenants. So we tarped the suspect roof area & waited for the freeze thaw cycle to complete & no more drips. Tenant was great catching drips with a bucket & next week when they are away for 2 weeks on vacation we will repair the ceiling area. Hopefully the tarp will solve the problem until the summer. Previous upper tenant used to remove the ice & snow so the ice dam never built up before.
New $700 fridge in another apt as the 10 year old died. Apt rent is $1095 & also great tenants. Tenants father came over to help carry in the fridge & reversed the doors.
Frozen pipes to another apartment that I did myself. The NEW 3 month old $168 kick-space hydronic heater failed. Another great tenant who pays $825 & she stayed at her sisters for a couple of days so I could get in there.
5 yr old o/the stove microwave died, so I had my favorite appliance guy find & reconnect a bad spade connection from the date of mfr. $80. Great tenants of 6 years & now paying $875/month.
No heat in another apt. also great tenants paying $975/month. With single digit temps & the ONLY HVAC guys I would EVER use booked a week out, I had to do it myself.
I replace the $120 hydronic solenoid head while the boiler was running & then had to find a replacement for a cooked $60 Class 2 24v transformer that's apparently only available on-line or at an obscure HVAC store several miles away. That would have been $950+ in just HVAC labor costs. Then I installed a new thermostat in the apt., tripped over their still shivering cat & staggered home. Hit the showers still nursing a couple of hot pipe burns to the forearms & balding head.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
@Elijah White, the issues you are seeing are common, in that you will see them, but not frequent. I.e. the tree is gone, so you won't incur that cost again, but if you or your tenants are not keeping up the property, you will have fairly large landscaping clean up bills every several years.
And as others noted, you need to build in items in your reserves. I.e. I have had brand new ranges quit on me after 6-7 years, over-range microwave after 4 years. A water heater just went out that was about 12 years old. All told, even if you buy a new construction property, you will have consistent expenses. At one point, I ran through all items of a property, and calculated monthly reserves based on cost and useful life, i.e. a new roof lasts 25 years and cost me $6k, which equates to $20/mo, every month for 25 years to have that amount saved. I came up with a little over $400/mo of reserves for both general repairs and Capex. This is not including management, leasing, PITI or vacancy.
Rental Property Investor · St Augustine, FL · Member since 2019 · 264 posts · 279 votes
5y
@Elijah White it's an ebb and flow process when you buy older properties. Houses need upkeep, electrical and plumbing issues, and appliances need replacing. Most appliances last 10 years, roofs 20 years and on and on. It's long term hold to make it to that pot of gold. I fell your pain. Some advise, Adjust the rents up every year by at least 3-5% is a must and don't back down on that Everything cost more for the landlord, taxes, insurance, repairs so we need to pass the cost on.
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
5y
Not only should you never buy pre-1970 houses again, you should really consider never buying ANY house ever again!
I'm half-kidding. My point being, move as quickly as you can to investing in apartment syndications. That way you don't have to deal with tenants, trash, or toilets.
I have two rental properties in Wichita, KS; both are single family homes that should cash flow around $250 per month but the repairs and fixes that I have had to do over the past six months (and especially the last month) have just been destroying my cash flow. A few months ago I had to have a tree cut down at one property, which cost $1050, then this month I have had a frozen pipe at one house, a clogged main sewer line at the other, a broken refrigerator and an electrical issue. In total, I am looking at ~$750 in repairs this month alone!! Is this just part of the growing pains and part of the learning process to become a real estate investor or am I doing something wrong? Should I never buy houses that are built before 1970 again? Both of these houses were built in the 1950's and I wonder if maybe that is part of the issue.
Thanks in advance for any advice!
Sounds to me like you've been "living" off your cash flow instead of re-investing in cash reserves for such capital expenses.
That's a strong temptation early on. I get that.
Planning ahead for the inevitable is key piece of the puzzle, however.
Specialist · Wichita, KS · Member since 2020 · 7 posts · 48 votes
5y
@Elijah White
I’m also based in Wichita. A big part of my job is projecting maintenance and capex spend prior to investors purchasing properties. Shoot me a note if you would like to discuss your specific properties more.