Repairs are killing me!
New to Real Estate · Aubrey, TX · Member since 2019 · 11 posts · 12 votes
Repairs are killing me!
Most Popular Reply
New to Real Estate · Orange County, CA · Member since 2020 · 214 posts · 184 votes
5yIn 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.
89 Replies
- Honolulu, HI · Member since 2020 · 44 posts · 39 votes5y
@Jay Hinrichs
Yup, and this is in Monmouth so I really thought it wouldn’t be going up much at all but it didn’t make financial sense having to pay for 2 or more years of $$$$ dorms or rent for my son that transferred to WOU his junior year, so we bought a 4+ bedroom house instead! We were able to use the rental income to pay for his tuition too so it all worked out. :)
- Honolulu, HI · Member since 2020 · 44 posts · 39 votes5y
@Ryan Malcolm
I did get one for one of my rental properties but it only paid for one $65 service call and a temporary fix/repair for a bigger problem but none of the other things I eventually had to pay for that year could be covered by it unfortunately. I think it might be worth it in certain circumstances though, it just didn’t do anything for me-it was a “wash”.
- Accountant · Los Angeles, CA · Member since 2020 · 4 posts · 1 vote5y
@Joni Chin
Fair enuf. T.E.T.O. but I'm a believer.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes5y
Originally posted by @Ryan Malcolm:
@Jim K. Would the property owner be better off had he bought one?
Most likely no. The home owner would still be getting jerked around on 3/4 of the repairs mentioned. Because that's how home warranties do, yeah, yeah, that's just how they do. They are experts in jerking you around if it saves them even a thin, burnished dime. And after you make your excuses for Not Getting It Done PDQ to the tenant for the fifth or sixth time "because of the home warranty people, gee, they're just so SLOW!!!" the tenant's going to start wondering, quite rightly, why you were gullible enough to buy a home warranty and try to pass all the problems of home warranty fulfillment on to your tenants instead of figuring out ways to Get It Done PDQ. This does not do good things for the timely, consistent, and reliable payment of The Rent.
Home warranties are a great help for selling flipped properties to the kind of people who tend to buy flipped properties. But in the buy-and-hold game, a landlord who relies on a home warranty is a total sucker. OK, I realize you think of yourself as a True Believer. Listen to me now, believe me later.
- Member since 2019 · 172 posts · 93 votes5y
I like to buy owner occupied homes as much as possible... they tend to have much less issues pop up due to the TLC an owner would put into the home they live in. Its also invaluable to have an excellent handyman in your corner who can fix most issues without breaking the bank.
- Rental Property Investor · Chicago and mainly invests in KS remotely · Member since 2018 · 360 posts · 314 votes5y
I'd like to add my 2 cents on the home warranty issue. I inherited a home warranty on the first property that I bought, a B+/A- property with crown molding and granite countertop. Within the first year the heat pump broken and home warranty cashed me out at like $2700. I wish they'd pay for the whole unit which was around $3850 but $2700 wasn't terrible. The warranty itself was $500 so it was a net win for me.
Based on my past experience, I currently own two home warranty on two of my properties with very old HVAC systems close to 25 years or more. I am not aiming for a lottery ticket, the warranty cost per year is only $300 and I can cancel at any time so it's a low risk play for me. I did the calculation and if any HVAC system finally breaks down it'll pay for itself and a bit more, and it will reduce my maintenance cost for the remainder of the term (or I can transfer the warranty to another property with old HVAC system). As someone that trades futures for a living I think this type of asset can have positive expected value if you use it right. Problem is, most people that buys them do not need them, hence an economic waste.
In a meta-picture, I generally think there are a ton of great advice on BP but the best way forward is always in your context and nuance so put your own thought into everything and obsess over details and think about scenarios. Even if what I said is true, which I am not confident, I'm sure far more people lost money in home warranty than made on it, hence the advice is true in a random sample. For my properties with home warranty I'm tracking every claim and comparing it to what I think it would cost if a handyman or technician had fixed it. Maybe in 2.5 years I'll create a post about this experiment. If anyone cares to hear about what company I'm using or the details of this contract dm me.
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes5y
This happens to all of us. Normally, properties do not have continuous high repair bills, unless they are very deficient properties. And those you should never invest in.
Here is an example of lost cash flow: Simply replacing a roof wipes out more than a year of cash flow.
You mentioned cutting down a tree - I think that large trees on rental properties are huge liabilities.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jim K.:
Originally posted by @Ryan Malcolm:
@Jim K. Would the property owner be better off had he bought one?
Most likely no. The home owner would still be getting jerked around on 3/4 of the repairs mentioned. Because that's how home warranties do, yeah, yeah, that's just how they do. They are experts in jerking you around if it saves them even a thin, burnished dime. And after you make your excuses for Not Getting It Done PDQ to the tenant for the fifth or sixth time "because of the home warranty people, gee, they're just so SLOW!!!" the tenant's going to start wondering, quite rightly, why you were gullible enough to buy a home warranty and try to pass all the problems of home warranty fulfillment on to your tenants instead of figuring out ways to Get It Done PDQ. This does not do good things for the timely, consistent, and reliable payment of The Rent.
Home warranties are a great help for selling flipped properties to the kind of people who tend to buy flipped properties. But in the buy-and-hold game, a landlord who relies on a home warranty is a total sucker. OK, I realize you think of yourself as a True Believer. Listen to me now, believe me later.
JIM Nailed it.. home warranties are worthless for a land lord.. for owner occ who has the time and patience to work through them maybe. but they are insurance and insurance is always trying to wiggle out..
I have a property in Vegas and even though the water heater was still under warranty from the manufacturer it went TU .. so you have to make a claim and do this or do that.. meanwhile tenant has no hot water.. how does that work.. so of course I had to buy a new hot water heater.. I think relying on these for a landlord and expecting a tenant to go through the process while it may work sometimes most of the times your going to get major push back and or really upset tenants.
- New to Real Estate · Aubrey, TX · Member since 2019 · 11 posts · 12 votes5y
Thank you to everyone that has contributed to this post, it helps to know that almost everyone has experienced something similar in their investment journeys. I realize that I need to be setting aside more for capex and savings for repairs. Thankfully I am not reliant upon the cashflow from these properties and any money made is just more money that I invest. Unfortunately, I just had ANOTHER frozen pipe this morning so I will add that to the growing list of expenses this winter storm has cost me. If I could take one lesson away from this whole experience, it is this: preventative measures are well worth the time, effort and expense if they can save you from scrambling to fix a problem when something does go wrong. In the future I will ensure that all my properties have insulated pipes! You live and you learn!
Also, with regards to home warranties: both of my properties have home warranties on them, and they have been useless in saving me any money this month. I have had a main sewer line clogged with tree roots, two frozen pipes, one 220V outlet that needed to be replaced and a refrigerator that went out. The warranty covered the refrigerator but that ended up being a simple fix that would've cost me less than the "trade call fee" if I had just found the contractor myself. At this point I feel like the warranties are a waste of money, but then again my HVAC might go out in a week and if that is covered then I will be thankful I have the warranties!
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Elijah White:
Thank you to everyone that has contributed to this post, it helps to know that almost everyone has experienced something similar in their investment journeys. I realize that I need to be setting aside more for capex and savings for repairs. Thankfully I am not reliant upon the cashflow from these properties and any money made is just more money that I invest. Unfortunately, I just had ANOTHER frozen pipe this morning so I will add that to the growing list of expenses this winter storm has cost me. If I could take one lesson away from this whole experience, it is this: preventative measures are well worth the time, effort and expense if they can save you from scrambling to fix a problem when something does go wrong. In the future I will ensure that all my properties have insulated pipes! You live and you learn!
If your rentals are in Texas make sure you check out the local soil conditions.. clay and movement of soil is very common in many parts of Texas and its not if its when your going to need foundation work.. there are things U can do to protect yourself.. IE use soaker hoses in the summer months.. and make sure tenants actually use them. your property may not be in a bad soil area but its best to know it now instead of later when you have to spend money fixing the foundation etc..
- New to Real Estate · Aubrey, TX · Member since 2019 · 11 posts · 12 votes5y
Thank you for that advice! Both of our rentals are in Wichita, but our home is in Texas. If we end up getting properties down here though I will be sure to keep the foundation maintenance on my list of preventative measures.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Brian Ploszay:
This happens to all of us. Normally, properties do not have continuous high repair bills, unless they are very deficient properties. And those you should never invest in.
Here is an example of lost cash flow: Simply replacing a roof wipes out more than a year of cash flow.
You mentioned cutting down a tree - I think that large trees on rental properties are huge liabilities.
Agree on the trees.. Having been in the logging business there is felling trees and then there is cutting them down in a urban setting which many times means taking them down from the top down a little section at a time with ropes so as to not damage property around them.
Now my old partner at least with fir trees could drop them so accurately he could drive a nail.. LOL at least that's what he said. so huge difference in felling a tree then bucking it up.. Not to mention the absolute killer of landlords and that is the root intrusion ( need a new waste line to the street) these can cost 5 to 15k depending.. and its amazing how many buyers of rentals NEVER do a simple sewer scope..
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes5y
@Elijah White so the tree and the refrigerator have nothing to do with the age of the house, and likely neither does the frozen pipe or the sewer. 50's houses can be good because the components are often into their 3rd or 4th generation. Scoping the sewer upon purchase is a good idea, especially if its cast iron. Its easy to skip but can come back to bite you (no need to ask me how I know). Its maybe $200. Frozen pipe? I'd look carefully at why that happened, but its usually a simple fix, like keeping the heat higher using insulation tape or adding insulation. Look at these as lessons in improving as an owner. Made the same misses, including leaving a window open in winter :) Here in New England 1800 houses are common and can work as a rental. Just budget for stuff and try and stay ahead of it. Ultimately less expensive to fix a few months too soon than a day too late....
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes5y
@Jay Hinrichs You mentioned a very interesting point on this thread - that you have to buy properties that appreciate. Cash flow properties just pay the bills. I've been thinking about this, and to some extent you're right. I made more on appreciation than cash flow. But you can gain equity from many different ways - not just buying into a hot market. For secondary markets, equity can be captured if you buy a distressed property and renovate it to a more attractive position. My biggest equity plays actually came out of the 2009-12 real estate meltdown, buying lower middle class housing. Eventually the values bounced back.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Brian Ploszay:
@Jay Hinrichs You mentioned a very interesting point on this thread - that you have to buy properties that appreciate. Cash flow properties just pay the bills. I've been thinking about this, and to some extent you're right. I made more on appreciation than cash flow. But you can gain equity from many different ways - not just buying into a hot market. For secondary markets, equity can be captured if you buy a distressed property and renovate it to a more attractive position. My biggest equity plays actually came out of the 2009-12 real estate meltdown, buying lower middle class housing. Eventually the values bounced back.
to me forced equity or buying at the bottom is a function of your ability to do that.. appreciation I think we can define as someone buying at market rates and a rising tide raises all boats.. properties just go up organically with no special work done or buying distressed assets and value adding.. And of course in my mind there is absolutly nothing wrong with buying a property that simply pays for its self and you pay it off in 20 years or so and add all that equity to your balance sheet and or your cash flow gets real.. Either way works in the long run.
- Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes5y
Originally posted by @Jay Hinrichs:
last storm my power went out this storm we are OK.
this is a classic example of why U NEED to buy property that has a good likely hood of going up significantly in value. the money is made in apprecaiton over time.. cash flow is a place setter and used to pay debt.. anything left over is just crumbs.. at least for the average investors with a few rentals.. my suggestion is to find great markets and break even.. dont risk non appreciating markets because you think you need to make 150 to 200 a month.. and in those same markets if you just buy nicer assets they will do better as well.
You know Jay, a funny thing happened to me. I started buying houses like crazy after the '08 crash. Couldn't afford to buy in all "A" area so I tried to mix it up. 2 or 3 "B's" for every "A". The "A's" didn't cash flow as well as the "B's" due to higher purchase price and taxes.
Fast forward a few years and, indeed, the "A" properties have appreciated like crazy. As much as 50 percent increases over the last 3 years. But guess what? The "B" properties have all nearly DOUBLED. Who would have thought it? Granted that increase is on a smaller base price but it is still amazing. 3/1 ranches I was all in at 65k, are selling like hotcakes at 130k.
I guess the moral of the story is for every rule there is an exception. On the other hand it could be that in Real Estate there are no hard and fast rules.
Respectfully,
Gary
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes5y
@Jay Hinrichs yup...time fixes a lot of mistakes and makes a lot of people experts!
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes5y
@Gary L Wallman yup in the Bs...it’s kind of like how used cars get more expensive in tough times. And now the two biggest groups of potential renters—retiring boomers and poorer but aspiring 2 income millennials—are targeting those 3/1.5 in nice walkable areas. Perfect storm.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Gary L Wallman:
Originally posted by @Jay Hinrichs:
last storm my power went out this storm we are OK.
this is a classic example of why U NEED to buy property that has a good likely hood of going up significantly in value. the money is made in apprecaiton over time.. cash flow is a place setter and used to pay debt.. anything left over is just crumbs.. at least for the average investors with a few rentals.. my suggestion is to find great markets and break even.. dont risk non appreciating markets because you think you need to make 150 to 200 a month.. and in those same markets if you just buy nicer assets they will do better as well.
You know Jay, a funny thing happened to me. I started buying houses like crazy after the '08 crash. Couldn't afford to buy in all "A" area so I tried to mix it up. 2 or 3 "B's" for every "A". The "A's" didn't cash flow as well as the "B's" due to higher purchase price and taxes.
Fast forward a few years and, indeed, the "A" properties have appreciated like crazy. As much as 50 percent increases over the last 3 years. But guess what? The "B" properties have all nearly DOUBLED. Who would have thought it? Granted that increase is on a smaller base price but it is still amazing. 3/1 ranches I was all in at 65k, are selling like hotcakes at 130k.
I guess the moral of the story is for every rule there is an exception. On the other hand it could be that in Real Estate there are no hard and fast rules.
Respectfully,
Gary
Gary would you say the 130k exits are going to first time home buyers or landlords. have the rents doubled so landlords are making same return you did or are landlords accepting a lower rate of return IE paying more for lower rents.. ?
I know in Portland many landlords ( because of rent control) are cashing out and there is a huge shortage of homes available to first time buyers and rentals tend to be perfect for those as they tend to be a little beat up etc. its nice to see the appreciation though in the middle of the country .. I suspect though 130k for those homes is still less than one could build a new one for so they are still a great value ?
- Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes5y
Originally posted by @Jay Hinrichs:
Originally posted by @Gary L Wallman:
Originally posted by @Jay Hinrichs:
last storm my power went out this storm we are OK.
this is a classic example of why U NEED to buy property that has a good likely hood of going up significantly in value. the money is made in apprecaiton over time.. cash flow is a place setter and used to pay debt.. anything left over is just crumbs.. at least for the average investors with a few rentals.. my suggestion is to find great markets and break even.. dont risk non appreciating markets because you think you need to make 150 to 200 a month.. and in those same markets if you just buy nicer assets they will do better as well.
You know Jay, a funny thing happened to me. I started buying houses like crazy after the '08 crash. Couldn't afford to buy in all "A" area so I tried to mix it up. 2 or 3 "B's" for every "A". The "A's" didn't cash flow as well as the "B's" due to higher purchase price and taxes.
Fast forward a few years and, indeed, the "A" properties have appreciated like crazy. As much as 50 percent increases over the last 3 years. But guess what? The "B" properties have all nearly DOUBLED. Who would have thought it? Granted that increase is on a smaller base price but it is still amazing. 3/1 ranches I was all in at 65k, are selling like hotcakes at 130k.
I guess the moral of the story is for every rule there is an exception. On the other hand it could be that in Real Estate there are no hard and fast rules.
Respectfully,
Gary
Gary would you say the 130k exits are going to first time home buyers or landlords. have the rents doubled so landlords are making same return you did or are landlords accepting a lower rate of return IE paying more for lower rents.. ?
I know in Portland many landlords ( because of rent control) are cashing out and there is a huge shortage of homes available to first time buyers and rentals tend to be perfect for those as they tend to be a little beat up etc. its nice to see the appreciation though in the middle of the country .. I suspect though 130k for those homes is still less than one could build a new one for so they are still a great value ?
Jay,
Mostly first time buyers. I'll pick one up occasionally if it's in tip top shape, but the returns are not as good as they were a few years back. Rents have risen dramatically, just not as fast as the appreciation. Used to get around $795 a month for that 65k investment. Now about $1000 to $1100 for the $130k home. Fell out of the 1 percent rule for sure.
You are right that you couldn't replace at the current price. Raw materials have gone nuts as you know firsthand.
That's why I started buying in the first place. It was obvious you couldn't build at the prices I was buying for, and our population seems to still be growing. So, to me, it was like buying 20 dollar bills for ten bucks! Gosh I miss those times. LOL
Best,
Gary
- Investor · Chicago, IL · Member since 2016 · 80 posts · 90 votes5y
I noticed that it comes in waves. So when times are good make sure you’re putting your cash flow aside. And take it as a learning experience. I like to see at least. $500 a month positive cash flow on single family homes. That’s before putting money aside for capex, vacancies and maintenance. That gives me about 3600 a year in an expense budget and about 2400 a year in true positive cash flow. Putting away 3-4k a year for expenses should give you a nice cushion to keep your properties maintained really well.
It really does seem as though when issues come up they all come up at once and then things calm down again.
Just keep learning and moving forward. Remember you’re still paying down your principal and the expenses are a write off and a great tax deduction. There’s some years when I wish I had more expenses come up to lower my tax bill, you’ll see. It’s no big deal just part of the game.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Gary L Wallman:
Originally posted by @Jay Hinrichs:
Originally posted by @Gary L Wallman:
Originally posted by @Jay Hinrichs:
last storm my power went out this storm we are OK.
this is a classic example of why U NEED to buy property that has a good likely hood of going up significantly in value. the money is made in apprecaiton over time.. cash flow is a place setter and used to pay debt.. anything left over is just crumbs.. at least for the average investors with a few rentals.. my suggestion is to find great markets and break even.. dont risk non appreciating markets because you think you need to make 150 to 200 a month.. and in those same markets if you just buy nicer assets they will do better as well.
You know Jay, a funny thing happened to me. I started buying houses like crazy after the '08 crash. Couldn't afford to buy in all "A" area so I tried to mix it up. 2 or 3 "B's" for every "A". The "A's" didn't cash flow as well as the "B's" due to higher purchase price and taxes.
Fast forward a few years and, indeed, the "A" properties have appreciated like crazy. As much as 50 percent increases over the last 3 years. But guess what? The "B" properties have all nearly DOUBLED. Who would have thought it? Granted that increase is on a smaller base price but it is still amazing. 3/1 ranches I was all in at 65k, are selling like hotcakes at 130k.
I guess the moral of the story is for every rule there is an exception. On the other hand it could be that in Real Estate there are no hard and fast rules.
Respectfully,
Gary
Gary would you say the 130k exits are going to first time home buyers or landlords. have the rents doubled so landlords are making same return you did or are landlords accepting a lower rate of return IE paying more for lower rents.. ?
I know in Portland many landlords ( because of rent control) are cashing out and there is a huge shortage of homes available to first time buyers and rentals tend to be perfect for those as they tend to be a little beat up etc. its nice to see the appreciation though in the middle of the country .. I suspect though 130k for those homes is still less than one could build a new one for so they are still a great value ?
Jay,
Mostly first time buyers. I'll pick one up occasionally if it's in tip top shape, but the returns are not as good as they were a few years back. Rents have risen dramatically, just not as fast as the appreciation. Used to get around $795 a month for that 65k investment. Now about $1000 to $1100 for the $130k home. Fell out of the 1 percent rule for sure.
You are right that you couldn't replace at the current price. Raw materials have gone nuts as you know firsthand.
That's why I started buying in the first place. It was obvious you couldn't build at the prices I was buying for, and our population seems to still be growing. So, to me, it was like buying 20 dollar bills for ten bucks! Gosh I miss those times. LOL
Best,
Gary
Well then thats great it gives the landlord a legit out if they want to take it.. If rents stayed the same then the values would barely move and you would not have much equity other than mortgage pay down.. real estate is a LOOONG play as you know.. And having the ability to transact when you did.. I think that is something that many folks miss on this site ( you know those wishing for a crash) they dont realize when it crash's so does lending and liquidity so unless those same folks who think all of a sudden values are going to drop but lending is going to stay the same they are in for a wake up call.. those who do well did so from capital from their other business or retained earnings or inherited cash or what have U then had the stones to actually go buy when no one was !!!!!!
- Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes5y
Yup,
Diversified from my car business. Probably hurt its growth a bit by diverting some funds I could have used for internal purposes, but you know what they say about all your eggs in one basket. So. . . it took some stones but also relieved some stress about being under diversified. Now I look like a genius. Twenty twenty hindsight.
- Member since 2021 · 1 post · 0 votes5y
@Elijah White for the appliance I would recommend getting a home warranty on them... yes it’s a monthly add to your expenses, but the peace of mind is there. If a refrigerator on stove or washer and dryer goes bad it’s covered. Believe me! It saved me hundreds. I had a tenant that went through two washer before I charger her for the third. The first (2) was covered by warranty & the third as well but each one was about (6) hundred a piece.
- Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes5y
We live off cash flow from SFR and it's a full time job for us as we're always rehabbing something in addition to repairs and landlording activity. Since we do all our own repairs, capex and maintenance is not as frightening as it would otherwise be. Doing a post eviction turnover right now (our first) and have one other house vacant waiting for its turn to get spiffed up. We just plod along (wife and I) and keep moving forward adding properties as we're able. We work hard but enjoy the process and being our own boss. We'll replace as least one roof this year and I'm trying to decide whether to do it or hire it out. Probably going with steel. (tin roof)
Join the conversationCreate a free account to reply, vote on answers and follow this thread.