Repairs are killing me!
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.
Thanks in advance for any advice!
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.
@Elijah White
Been there and done that.
1.) Get an inspection. If pipes are slow, dripping or backing up, I find a plumber and replace the cast iron with PEX or PVC and have new holes drilled through the bottom of the cabinets or floor (rather than tear the walls up) for kitchen sinks and bathrooms, and have the on/off water shut off valves changed if corroded. This 3k fix will save me many years of “nickel and diming” my profits. Negotiate the price of the house with this in mind. Best of luck.
Are you doing the repairs yourself or hiring it out?
@Elijah White take a deep breath and hold onto your seat. This is part of being a real estate investor. Every month you should be setting aside money (CAPEX and Maintenance Reserves) to help with things like this. This is why cash flow is so important.
Been doing this 15 years now. I’ve had some serious bills too. And it’s so important to have money set aside to handle them. Also, you might prioritize the repairs so it’s not all at once. Some months you are going to be negative and others you are going to be positive. And remember you are building equity in the house every month.
Deep breath and it’s going to be fine. It’s easier said then done. I was pretty sure I had hit financial ruins with $30k in bills my first month of ownership. We buckled down and got through it.
@Elijah White
First thing is make sure you set aside a couple
Bucks for cap ex vacancy and repairs on every property. The numbers will vary for each property but that important to make sure you do. After your expense plus your escrow funds the remaining amount is your pure cash flow. When purchasing older properties your gonna have a ton of Matainence. One thing I would do to prevent losing your cashflow is the get a home inspection prior to closing and factor in those repairs from the start. That way you’ll still have your wanted cash flow each month. I prefer value add properties so that way I do the repairs myself and I know that they are done and done correctly. I still set my money aside but at least I know I won’t have any issues right away.(more likely at least)
A couple of suggestions I have right now are to one get a home inspection of the property. I know this is extra money right now but at least you can see what else is needing the be fixed or will need it shortly. I am in construction so I can see issues but you always need to get inspections and sewer scopes. This will let you know what type of condition your properties are in.
Next I would make sure the figure out what issues you need to fix prior to closing snd do the repairs immediately before you put a tenant in there. If your buying them occupied work around the tenant to get the needed repairs snd factor these cost into your purchase so
You don’t lose cash flow anymore. Go for seller concession to add extra money to your mortgage or just pay out of pocket for the repairs.
To me this is common in real estate. Houses break down and need fixing. You just have to time the fixing correctly so it doesn’t cost you!
Good luck man snd just hang in there. Investing is a roller coaster sometimes but if done correctly it can be very profitable!
This is exactly why I switch from rentals to syndications as soon as I became and accredited investor.With 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I had 11 of these and good systems in place but still had 1-2 evictions a year and 3-4 big things that were normal annoyances like plumbing leaks, damages from hurricanes, or some vandalism. Image if I had 30, just 3 x those numbers. Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications.
@Elijah White newer properties can eliminate certain problems, but you can still have plenty of issues with new properties. In fact certain things like furnaces will have more problems when you have newer models. They have added a lot of safety and efficiency features to furnaces and as the complexity increases, so does the rate of repair. Here is a good example, my personal residence built new in 2008:
- All high end Moen fixtures. I have had to order replacement handles for 4 of the 5 bathroom faucets. I have had to order replacement parts for the kitchen faucet twice. All three toilets have had issues with flappers or flush mechanisms. On top of that two toilet seats broke.
- Appliances all new when we moved in and higher end. I have gone through two microwave ovens, on my third. Wall oven fan bearings are going bad and it is very noisy. Refrigerator ice maker broke. Dryer heat element has gone out two times and now the thermal sensor is acting up.
- Hot water heater is electric with lifetime tank warranty. One of the heating elements went out after five years.
- Furnace is high efficiency. The fan blower motor has gone out twice. The first time it was in warranty and the second time it was not. On top of that, one of the sensors went out and needed to be replaced.
- One of the garage door springs broke after year six.
- Roof vent at bathroom stated leaking after year two.
- Closet door mechanism to hold door shut broke on three closet doors.
My point is that even new properties have problems. Maintenance and repair comes with the territory. It can be worse when you first buy a property, because there is often deferred repairs. Sometimes it is better to repair than to replace since newer items are not designed to last as long.
One way to mitigate risk is scale up to more properties. People can have 0 problems with two properties or lots of problems. it is really luck of the draw. When you scale to more properties, you eventually reach statistical average of risk.
@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.
I usually advise against these warranties. There are countless stories from landlords of these warranty companies taking weeks or months to fix issues. They find reasons to deny claims or try to repair it multiple times before replacing. They often fix problems so slowly that tenants get angry.
If you look at the total cost of this warranty over time against the statistical cost of repair, the warranty company is charging 10 to 1.
I am glad it has worked out for you, but be aware if you place enough claims, they will eventually drop you.
My advice to people is never buy extended warranties on anything. Put that money in an emergency fund instead. Out of curiosity, what do you pay per month for that warranty?
@Elijah White Oh repairs!
What are you reserving each month for capex and repairs and how long have you owned the property?
Also, did you get a home inspection on them?
As you go, you should be making adjustments to increase your capex and repairs reserves. There is a good BP article for capex. Sometimes throwing a percentage at it doesn't make sense if some of those items are near end of life.
@Brianne Leichliter I have been saving 10% of the month's rent for repairs and 10% vacancy. I am planning on increasing that after this month; I haven't calculated the exact amount I will be trying to save, but will base the numbers off of Brandon Turner's article here: https://www.biggerpockets.com/...
I have owned one of the rentals for 5 years, but only been renting it out for one year. The other rental I have had for 6 months. I have had both properties inspected prior to purchase BUUUUT I did not have the sewer scoped on either property which I will definitely due going forward.
@Elijah White - Good to hear you're putting some money back. You should have three reserves - capex, repairs, and vacancy. And yes! That's the article I as referring to on calculating CapEx.
Reserves are meant to just be held in a savings account for the unexpected. I can see if you're just starting to rent them out that you wouldn't have a nest egg of these items built up yet. Sewer scoping is definitely a good idea! A lot of these items should have been discussed during a home inspection in term of age of some of the items. I always find it is better to try to negotiate some of the repairs/capex in the deal if possible (or cash at closing to be able to do them immediately) than to take a price reduction. Eliminate as many of the potential issues up front.