All Forum Posts by: Joe P.

On top of estimating items that need to get done now, make sure you set aside 10 to 15k in the unforeseen items that will come up. I had a pretty sparkling inspection report aside from some minor items, and the seller didn't disclose a lot...I've spent about 8k in 1.5 years taking care of deferred maintenance. My CAPEX and maintenance budgets for a partial year 1 and full year 2 were decimated, leading to a lot of unnecessary stress and painful situations.

Set aside that money now, and either be glad you did or thankful that it potentially won't be needed.

I'm sure John can help you with those estimates, but this is one semi-newbie investor to another with probably the only advice I'd go back and give myself buying my first true rental that I didn't already think about or know.

I'm surprised people have said hardwoods, especially for a rental. Even if they're weren't old pine as described, I'd probably still put LVP down.

Hardwoods might net you some extra money for renting, but where you'll REALLY see the return is if you were selling.

Hardwoods would prevent you from renting to people with pets -- pets will destroy hardwood especially if its weak. As will moving around furniture and general wear and tear.

If its my property and its a buy-and-hold, I'm putting down the vinyl and getting 20+ years out of it while its rented. Then if I want to sell, I'm ripping it up (for free, not hard to do on your own), and having a professional refinish.

We're not talking astronomical differences in rents for hardwoods versus LVP -- its not like people pay $200 more a month because of a difference in flooring. I've seen LVP as durable and almost as nice as hardwoods these days, so most people don't even know the difference unless you specialize in high-end rentals. The market (for 90%+ of rentals) will dictate your rent, e.g. 1 bedroom nets $500, 2 bedroom nets $1000, etc. You adding hardwoods is not going to make those numbers 700 and 1200. 550 and 1050? Maybe. But refinishing them just to get ruined in 5 years by people who don't care about it...and it would be considered wear and tear...is not worth it.

I'd also consider a CAPEX budget to be "building over time". Year one, if you setaside 2k and don't use any of it, then that is your setaside moving forward. If you go 10 years without any CAPEX, your CAPEX budget is now $20,000. That's not investment money. That will go to fixing the problems with this property that invariably will come up.

Just because you don't have any CAPEX this year, doesn't mean your roof won't need replacing, your hot water heater won't die, or your appliances last forever, or you need a new shower/tub/toilet, etc. Those items are degrading by a tiny percentage daily...so be prepared by having the CAPEX for it over time. The last thing you need to do is take your CAPEX budget and invest it into something, and then have to dip into personal funds or a HELOC because you robbed Peter to pay Paul.

One way you can avoid all of this...and a mistake I made and tell people whenever these posts come up...is to have a healthy budget set-aside already for each property as a "deferred maintenance" catch-all. Make it 10 to 15k, if you can, and include it in your property evaluations. This way you've got the funds set-aside from the get-go and if you don't have any significant CAPEX, that could be invested.

People do a nice job of leveraging available funds for their investments, and if you can take them, use them. I personally want to stay away from over-leveraging myself, my primary residence, or even my investment property, unless it was for a project to bring in more income. A HELOC to pay down debt incurred from fixing a property seems like correcting one mistake with another mistake.

My father (who I don't have a great relationship with) called me a slumlord last Thanksgiving. Twice.

I politely reminded him that I took the knowledge I've gained to try and build a better life for me my wife. And that I would live in a property I buy, because I think that's important. And I told him my property rents were $1000 each, which I thought to be quite a bit of money, so I don't consider that a slum.

It was all the justification I needed -- I'm doing something that an armchair investor (or non-investor) would poo-poo. I could be a failure, but my rear-end is off the couch trying.

I think if you're called a slumlord, its for 3 reasons -- someone is jealous, someone has a bad landlord experience, or you may actually be a slumlord. I can't control the first two.

@Diana Rendon I am also not an attorney, and my advice should not be taken as legal advice, but I think you have a negligent landlord, not a harassing landlord.

Repairs that don't happen in an appropriate timeframe, is negligent. Not providing advance notice on people entering the home, is negligent. Rent increases? If they're within the law, while inconvenient at best for you, is allowed, perhaps its backdated for "additional tenants", but not providing you with written notice, also negligent. You said it yourself..."However, within the last couple of years her and her landlord have not seen eye to eye."

You have a negligent landlord, not a harassing one, in my humble opinion. While I do think you have a stronger legal case, play it out -- you sue him, and win or lose. Now what? What you were looking to avoid completely -- moving out -- is probably the next move either way. You'll spend time and money sueing him for his negligence, but what's the real damage? Maybe a few thousand dollars of rent return and an even greater reason for this landlord to replace you? There is also clearly separation between the owner and the landlord, perhaps you can ask to speak to the owner and bring up your concerns, and see how it goes?

Worst case -- contact a lawyer in your area and see what they say. Most consultations are free. I don't think jumping to "we need to sue" is the answer, personally, but a strongly worded letter from a lawyer asking them to reconsider their current positions in light of the law? Might be an acceptable middle-ground.

When you do reach out, ask them what the end game is. "Here is our case...how can this play out?" And he/she may ask how YOU want it to play out -- so be ready to answer that question. 

I am going to take a different approach than others have -- it seems like there are some repairs that are sorely needed and are not being accomplished. (It sounds like the rest of the items, while undesirable, are not sue-worthy, so to speak).

So ask yourself this -- you have a landlord who is basically not doing what he's supposed to from your vantage point, and you want to sue. For what? Money? How do you think this is going to play out?

Here's what I say -- move. Start the process. If you truly feel like this landlord is not holding up his end of the bargain, and you need to take him to court over it, you're going to waste a lot of time for what I think will be a meager return. Put your energy (and money) to something that will have a better end-result for you, which is moving.

There's definitely some missteps from this landlord, no doubt, and you might have a case...but where? Small claims? What are you going to actually sue him for? And I'm sure the judge is going to ask you some tough questions (and him)...why don't you just move?

Your vacancy is way too low...consider turnover fees and having each unit vacant for at least a month -- that's 2,800 just in a month of vacancy ($233 per month).

Your repairs and CAPEX are incredibly low. I'd probably do 10% for management fees also.

Also agreed on the water bill...4 units is probably $150 a month, minimum.

I've seen worse deals but I think you should estimate what the worst case scenario would be -- and if you break even there, work your way back to some normalcy.

A lot of this also depends on how handy you are and how much work you'll do yourself. I'm an investor, I want someone else to manage the property and take care of tenants/issues. Well what's a new water heater? $750 installed? A new fridge or oven? $500? These things cost money...you could blow through your CAPEX and maintenance budgets easily when they're that low.

I also saw you didn't have an initial set-aside for issues -- I did the same thing and I've spent about 10,000 on my duplex in the last year just handling deferred maintenance that wasn't apparent. You should be prepared for the same...

Now with all of this in mind, re-run the numbers. A lot closer to zero now, isn't it?

Some pockets are nice, some are not. You would need boots on the ground to help with selecting a property and managing it for sure. Not something that can be done from afar.

@Paiea Palomanu congrats on the first purchase! They say the first one is the hardest.

I'm in the same boat as you -- I bought my first duplex in August 2018 and I've yet to turn a profit (down about $3,000 in cash flow). Make sure you have a "initial few months when stuff goes bad" budget of 5,000 to 10,000 because apparently, you need it.

I'm trying to figure out my next deal, but I'd also like to see this deal even out next year. We've spent a lot of money on maintenance/CAPEX items and I'm hoping we're turning a corner.

If you do not have experience in understanding home issues (I certainly didn't) try and find an objective person to review homes with. Pay them for their time. They can walk through and show you problems and how much it'll cost to repair. I have a friend who does handyman work and since he's a friend, he's brutally honest about issues that he can see.

I like visiting homes, if possible, after large rains. Can tell you if there are roof leaks, foundation issues, gutter problems, water in basement problems, etc.

Do not expect to walk into *any* property and not put a dime into it. A reserve of 5-10k PER UNIT is not unreasonable, as @Jonathan Greene indicated (great advice all around, Jonathan). Try and take care of problems before any tenants move in.

Don't do this for meager income. Your first deal should be profitable enough for you to want to do it. If it isn't, it isn't the right home, the right time, or the right deal. 1 out of every 100 (not scientific, but perhaps on average) deal that comes across your desk will be worth looking into.

If you see people rushing into markets at an untenable rate, it should tell you two things -- one, people know what they're doing, and two, they're being followed in by people who have no clue. Unless you're in the first group, make sure you aren't in the second.