Replace roof prior to tenant move-in?

22 Replies

Hello!

My wife and I are purchasing our first investment home so I am interested in some advice. The home itself is a 3/1, 815 SF and it has a simple, low pitched shingle roof. The roof is nearing the end of its usable life. A few of the shingles are starting to curl, but there are no leaks. Our strategy is to buy and hold long-term for positive cash flow.

Would the savvy investors in here A) Replace the roof as soon as possible before we move-in our tenant, or B) Wait for some time so we can save up and get the most out of the current roof's life?

Our strategy is to buy and hold long-term for positive cash flow.

I should also probably point out... We are located in Jacksonville Florida and entering the peak of hurricane season.

Thanks!

@Dane Gullakson , others may not subscribe to this philosophy, but I am a big fan of being proactive rather than being reactive. Upgrading/replacing as many things as possible before tenants move in will save you hassle and stress. Construction is not something anyone wants to deal with or live through, so if the roof is on it's last leg and you know it's going to fail soon, I'd say replace it before you get your first tenants moved in. The last thing you'd want to get is a phone call stating the roof has begun to leak. Then you'd have to make sure there is no mold or other water damage that was caused by the leak. 

Hello and thank you for being on this site Dane!  I tend to be a little opinionated but none of this is meant to hurt you.  The first thing I will say is that houses are very risky investments in Buy and Hold deals.  I hope there is great demand for it.  I like that you think of it as a long term investment.  To reduce your risk down and own you need 15 to 20 or more of these if you are aiming to quit your job and living off real estate investments  and they will all have different addresses.

They will probably cost more than you think it will cost to do a turnover. If you already have a Tenant I would wait to replace the roof to take advantage of the best time of the year to do this and hopefully a little cheaper.  Put as much as you can in the reserve account so you can easier do anything necessary.

Positive cash flow is more important than the location.  I'm probably the the only one you have heard say that.  Don't get me wrong because the location is important when purchasing real estate.  The cash flow you get from that one house might help you but it probably is not enough to pay all your bills and that is fine if y'all both have good jobs that you like and just want to supplement your income.

Who the hell am I?  You are reading a letter from a 61 year old that has about 30 years of experience in construction management and had a real estate broker license in Texas for about 30 years too and my dad had a broker license when I graduated college (with honors) with a business degree that emphasized real estate and he did mostly commercial deals that I learned from.

Good luck to you!

Do it now , because when there IS a problem with the roof leaking , all the contractors will be busy and you will be adding interior repairs to your list 

@Dane Gullakson I would suggest doing it now.  Once you have a tenant, they may not tell you when it starts to leak.  I once had a tenant that never mentioned any leaks.  After they moved out, I was doing the tenant turn over (cleaning, painting, etc) and one day while I'm there it starts to rain.  Water began to run down the sheet rock from the ceiling.  It was obviously a roof leak.  I later called the tenant (that had just moved out) and asked if they ever noticed water leaking down the wall in the kitchen, his response was "only when it rains".  When I asked why he never mentioned it he said something about forgetting and that he was moving out soon.

Originally posted by @Dane Gullakson :

Hello!

My wife and I are purchasing our first investment home so I am interested in some advice. The home itself is a 3/1, 815 SF and it has a simple, low pitched shingle roof. The roof is nearing the end of its usable life. A few of the shingles are starting to curl, but there are no leaks. Our strategy is to buy and hold long-term for positive cash flow.

Would the savvy investors in here A) Replace the roof as soon as possible before we move-in our tenant, or B) Wait for some time so we can save up and get the most out of the current roof's life?

Our strategy is to buy and hold long-term for positive cash flow.

I should also probably point out... We are located in Jacksonville Florida and entering the peak of hurricane season.

Thanks!

We set aside a portion of our gross rents each month (usually 15-20%) in a capital improvement account and then we can use that account to fund repairs like roofs, AC units, remodel of kitchens or bathrooms, new appliances etc.

You will always find something to spend on , I would spend some time to prioritize your capital spending, and to plan ahead of time for big ticket items to keep your place in top condition.  

We own a roofing company, if the shingles are curling and failing do it now. You can do it with the tenant living in the house but be proactive... you do not want to cause interior damage.

Great advice everyone. I appreciate the thorough responses.

I am definitely leaning towards doing it sooner rather than later, but since this is my first property, I wanted to get some advice from the community.

Thanks again!

@Dane Gullakson . See if you can negotiate replacing roof in the contract. If you already have contract in place, see if you can go back with  a higher price (equal to cost of roof) and  see if can get Seller to credit you the cost of new roof. 

Doing it this way it becomes part of the loan, rather than taking money out of your pocket.

Im waiting until the end of hurricane season.   You know... In case I can claim on the hurricane coverage and get half off.

Adding to the loan will affect cash flow, so make sure the numbers still work.

At any rate, I would wait until there are problems to replace a big item like a roof.  Otherwise youll never know if you had 1, 2, 3 years left.

One thing not brought up yet is it may be difficult for you to get insurance on the home with the roof in it's current condition. 

I purchased a home last year and the insurance company (Allstate) contacted me a few months after closing stating they did a random drive by and my roof didn't meet their standards and I'd be dropped from the policy if a few minor issues weren't corrected. 

@Ayne C. Agreed 100% You could have 5-8 years left on that roof without any issue.. And if you do have a small leak is not the end of the world, just do a cheap repair to hold you over until you absolutely have to get a new roof. Maximize your cash flow.

We generally do full rehabs on properties before tenants get in - so if the roof is at the end of its life then it might as well be replaced. That said, I have replaced a roof in a house with a tenant in it before and it's no big deal - the roofers I use can do anything from 4/12-8/12, start to finish, in 4 or 5 hours. They show up with about 15 guys. The tenants never even knew they were there other than me telling them they'd be there. 

When you are proactive and not reactive you choose when to spend the money, not Murphy. Murphy can be sadistic about that sort of thing.

IRS tax rules, from what I understand, allow you to deduct repair costs from your income from when you begin to advertise the property as available for rent, not from the moment a tenant moves in. Of course, you should check with your CPA first. If you don't have a CPA, get one. But if I'm right, start advertising, fix the roof, and have it done by the time your screening process is done.

In addition, since it's a small simple roof, as you said. If I were you, I would investigate doing it myself. There are all kinds of books to help you with that. There are some serious bucks to be saved and a process to learn. Roofing is one of the key jobs in this business, and the more you know about it yourself from a hands-on perspective, the more respect you're going to get from roofers, who tend to be the most clannish and arrogant of tradesmen because they do the most dangerous residential trade, although the actual work itself isn't typically as complicated as more highly paid trades like plumbers and electricians.

@Dane Gullakson

1. If you are still negotiating with the seller, see if they are willing to file a roof insurance claim. Offer to pay for the deductible and make sure you get them to sign an assignment of insurance proceeds (so that the insurance money comes to you if you are the actually one paying the roofer). Sometime/some places the insurer will approve the claim, as they don't want to be held responsible by the next owner insurance for roof claims (there is a legal term for that, my roofer told me about all this), so it's worth to look further into this approach. It might even work after the purchase (basically your insurer goes after the previous insurer).

2. Make it part of the negotiation process and lower the purchase price and/or above mentioned. And/or make it part of the purchase price (buyer back assistance), thus making it part of the loan (if it's still appraises for the value, down payment and no problem from the lender).

3. If you already got the property, and it's listed for renting, see if you can apply the bonus depreciation for roof replacing (with the same type of roof, no improvements) - talk with your CPA. You might be able to claim the whole expense in that year.

4. A working roof is a working roof - if the roof is still functional and you don't think it will split open in a storm or fly away in a hurricane (when all bets are off regardless), just repair and build capital expenses. If #3 not possible, just repair the problematic spots - those repairs will be deductible expenses, your checkbook will thank you.

5. Check how things work with your insurance - lower your deductible to max possible first and wait for a storm. File a claim and get them to either approve the replacement, the repairs or to tell you the roof is in good shape and not needing repairs/replacement. That way you have proof of status of roof next time you need to file a claim - if the roof is damaged, they will have to approve the claim. After you replace the roof, raise the deductible to lower the premium.

6. Regarding tenant - You still need to do proper property management, including periodic maintenance inspections. And you should have something in your lease agreement about immediate notifications for any water leaks of any nature and the consequences of tenant not doing it.

To summarize: it depends on the roof condition, the insurer and your financial planning, it might make sense and have options in replacing the roof, or might be better to do repairs and postpone replacement.

If it’s as simple of a size and design as you have stated just do it yourself . Don’t pay out a bunch of money on a contractor .Roofing is not difficult it’s just labor intensive . If you do the work yourself you’d be shocked to see just what little the materials cost . something you’d get a 7000$ bill for could cost as little as $1200 if you do it with a few friends over the weekend .

Hi @Michael Garofalo I have to agree with @Mark Fries . If you think about it as a long term and there is no leak at all as you said, I would wait, unless the insurance company asks you to replace it. Needless to say, roofings usually last more than the estimate time, thus, if you think that it might last 2 years, it end up lasting 5 years, in the meantime you can collect rents to pay off the roofing and maximize your cash flow.