What almost sank your first rental?

Question

Not the win, the near miss. The roof you didn't budget for, the tenant who stopped paying in month three, the rehab that doubled, the loan terms you didn't read closely enough.

I'll go first. I planned for the foundation repair. I did not plan for what leveling a house does to the plumbing underneath it. Once the house moved, the pipes had opinions, and suddenly I had a second project I never put in the budget.

What almost took you out, and what did you change after?Best answers run in a Thursday send of the BiggerPockets Investor Brief newsletter.

Dan Nelson · Answer

My near miss was a condo. I bought it because it was cheaper, and it looked like I'd be on the hook for less. Somebody else runs the building, I collect the rent. That was the plan. The HOA docs allowed rentals. The owners who lived there were not fans of renters.

The complaints about my renters came in like clockwork. So did the fines, and when a fine was wrong, I had to fight it. Then the HOA changed the move-in dates and raised the cost of moving in, so my renters paid more just to get in the door. The docs still said yes to renters. The owners just made yes cost more.

I owned the unit. I didn't control the rules. Lots of people have success with condos. What I changed is what I buy. Now I want the land under my investment property. I love the long-term appreciation, and I love that nobody down the hall gets a vote.

JD Martin · Answer

Not damages or underestimated costs, but lack of systems. My first rental, as it was progressing a neighbor told her friend that the house was being renovated as a rental. The friend stopped by one day as renovations were almost done and asked about renting, as her friend lived right next door and she was going through a divorce and needed a place by a certain date. We were so excited to have the place rented before even listing it that we rented to her under market, did no credit or background check, and worked double time to finish the rental for her needs. She moved in and less than 3 months later reconciled with her husband and moved out, leaving us with a turnover just before Christmas. That resulted in a less than stellar tenant who just absconded into the night a few months later, leaving a clean out. That was the end of "no systems"!

Ming Yi · Answer

My second year, a water heater let go during a vacant week between tenants. No drama, just a $1,400 bill I hadn't budgeted, because I was tracking everything in my head plus a spreadsheet I updated 'later.' The repair wasn't what almost sank me. It was realizing I had no idea which properties were actually profitable, because I'd been watching my bank balance instead of per-property numbers.

What changed: every expense gets logged to the property the day it happens, with the receipt attached. Boring, takes two minutes, and now I can spot a bad month on one house before it becomes a bad year. The habit matters more than the tool.

Adam Bartomeo · Answer

It was the 2008 housing crash. I bought in 2007 and was underwater 6 months later. Owning a SFR during the worst housing crisis in American history taught me the lessons that allowed me to catapult to being one of the top brokers and property manager in the county. While underwriting a property is important, it is even more important to understand the sensitivities of the whole market.

Carter Ricks · Answer

Mine was more simple, I didn’t understand how rentals worked.

I didn’t account that my rental would take 3 months to rent. I didn’t account that the home I bought had over 1k worth of repairs before being ready to rent. I didn’t account that the property manager keeps first months rent.

And lastly, I didn’t account that stuff actually breaks in rentals (stupid right?).

Now I know what a rental costs but it cost me a lot to find out. I think the problem is so many people saying you should invest in real estate but never actually telling you how it can take months before you’re seeing any profit whatsoever.

C.N. S. · Answer

Three years into owning my first property (a duplex), I've had to replace the water main pipe, replace an HVAC, deal with three sewer main backups, and complete major foundation work requiring 21 I-beams. I've had to finance pretty much everything and pay for it with my full-time job.

While it isn't illegal, my real estate agent also represented the seller, which I think was a conflict of interest. I feel an agent who worked only with me would have explained that an inspection flagging end-of-life mechanicals (TWO HVACs and TWO water heaters) and foundation issues could have supported negotiating a lower price and seeking concessions for replacements and repairs.

I ended up paying almost the full asking price, which was too much for a house with severe deferred maintenance, and am trying to claw it back to stability. Getting this house to pay its own expenses would be considered a success.

Aaron Zimmerman · Answer

Lead based paint remediation and a non paying tenant. Both were during Covid unfortunately. Fortunately though, I still have the property as I had solid reserves!

Austin Hughes · Answer

The fact that it was a 12 unit full of chinese exchange students and when they moved out - I didn't have the connection. At the same, student housing was severely overbuilt.

Ying Tang · Answer

My property manager placed a tenant who is self-employed and stop paying rent after three months. My PM kept listening to her lies and let her stayed for almost a year.

Helen Adeosun · Answer

What I didn’t see was what I chose not to see. I moved back South to buy my first house hack in 2023. My realtor actually tried to dissuade me from buying the property but we had managed to cut their asking price by 20K so I already felt on top of the world! What I chose not see was the catering company that would pop up every time I searched the property.

What I chose not to hear is my dad calling out that the AC unit was likely older than him and was hanging on for dear life the day we were meant to close.

Then it all happened after I moved in: three months later one toilet back up, easy right? No, sewage was coming out of the tub then the other bathroom also was backing up and had sewage coming out of the sink, tub, the floors 🤢. After 1k of the line inspection I should have done before close I was stuck with an insurance bill and one useable toilet for three months and 3K out of pocket for the mitigation and deductible.

Then two months after that the AC stopped working. Boom 10K to install a whole new AC system and replace bad ductwork.

Then the night before Thanksgiving the trash disposal wouldn’t work and the drain was backing up — turns out their catering kitchen had deposited 30 years worth of bacon grease in the line and nearly cost me 10K for the line replacement but fortunately we jetted it (a service fewer and fewer plumbers do) for 1k. The plumber said it was one of the worse smelling things he had smelled in his decades as plumber.

The house ate up my reserves, bonuses, grossed me out before in year two I managed to fix the basement and finally make income as an Airbnb and now as a Padsplit.

I’m selling the property (hopefully in 2028) because it is in and HOA and it’s appreciated nicely to what the sellers wanted and beyond. I’m also selling it because I finally bough my second house hack this year and it cash flows 2K even with me in it. Im blessed as the house taught me how to be a landlord, and be diligent in inspection. The next property I recouped 20K at closing because of a bad sewage line! The first house is now a reminder also of three years of the houses I didn’t buy.

Lesson: avoid buying in an HOA, inspect everything and maximize you’re diligence period to negotiate cuts or even better credits or cash at close, ALWAYS get the line inspection (as a gift now I pay for friends buying to get lines inspected to avoid heartache).

What almost sank your first rental?

What almost sank your first rental?

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