Author Topic: which repairs matter? landlord philosophy (Read 999 times)

ryanht13

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which repairs matter? landlord philosophy
« on: November 03, 2017, 10:14:44 AM »
I have a contract on an older home built in the 1940s.
It's not in a war-zone, but the area isn't great either (call it a D+/C- area). Sort of a bet on revitalization.

Anyway, I purchased it from a guy who "flipped" it out of foreclosure (all interior / cosmetic stuff).

First, here are the numbers-
Price 68,500
LTV 80%
CC 3,000 out of pocket

Rent range $700-800/mo

Just got the home inspection report.
It seems the biggest issue is with the plumbing. There are some leaks in certain areas. Small ones inside the house and spraying coming from the exterior faucet. Cast iron. There is also some quirky wiring, but nothing major. Home is grounded, etc.
HVAC is 20 years old but still working - but could go any day.

Home is on a crawl space.

There are a few small things I need to fix for safety reasons, but I'm wondering how to approach the major repairs.
Do I rent it out for a year or two, get some cash flow and then tackle the repairs as needed / with tenant turnover? Or bite the bullet and do $10,000+ of upgrades now?

I should also mention, I live in Texas and the property is in Alabama. So definitely an absentee landlord.

This is a long-term play and I plan to keep the homes I purchase for 10+ years.

srad

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Re: which repairs matter? landlord philosophy
« Reply #1 on: November 03, 2017, 11:22:18 AM »
This is your call, I've done both. My suggestion to you would be if you have the money, fixing it right the first time will save you a lot of hassle down the road. Especially since this is a long distance thing, i'd really want to have everything in ready to rent shape. Now if you are short on cash here's how i would handle the rest.

Obviously your plumbing needs to be fixed, I'd get a bid to fix the leaks and a bid for a repipe. If its only another 2k or so to repipe, just do it. Also, i like to put in new faucets if they are older and i didn't put em in. Plumbing related calls is probably my most frequent from my tenants.

Electrical, i wouldn't worry about redoing, maybe just fix the one or three quirks. I can't think of one house I've purchased where the electrical was perfect.

HVAC - leave, fix it when it dies or you save up for a year or two. I"d also pay for a tune up, they may have suggestions as well.


former player

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Re: which repairs matter? landlord philosophy
« Reply #2 on: November 03, 2017, 12:15:06 PM »
Don't mess around with not getting the leaks and any potential leaks sorted: water in the wrong place will deteriorate a house faster than anything else.
Be frugal and industrious, and you will be free (Ben Franklin)

tralfamadorian

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Re: which repairs matter? landlord philosophy
« Reply #3 on: November 03, 2017, 07:42:53 PM »
...a D+/C- area...

...Cast iron...HVAC is 20 years old...

...an absentee landlord...

Are you sure you want to purchase this property? This is a significant amount of expensive CapEx on the near horizon.

Have you lined up your property manager and verified that there are property managers that work in that neighborhood? Many property managers worth having will not manage in D.

Not what you asked, but I would drop that contract like a hot potato.

waltworks

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Re: which repairs matter? landlord philosophy
« Reply #4 on: November 03, 2017, 09:16:22 PM »
-Just barely 1% rule, and at the bottom of the price/rent range where overhead kills you.
-Lots of stuff wrong with the house.
-D+ neighborhood
-Out of state owner

Run away. This is a money pit at best, a writeoff at worst. If you were local and handy/liked working on houses, then *maybe*. As it stands? No way in hell.

-W

Kl285528

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Re: which repairs matter? landlord philosophy
« Reply #5 on: November 04, 2017, 07:52:49 AM »
-Just barely 1% rule, and at the bottom of the price/rent range where overhead kills you.
-Lots of stuff wrong with the house.
-D+ neighborhood
-Out of state owner

Run away. This is a money pit at best, a writeoff at worst. If you were local and handy/liked working on houses, then *maybe*. As it stands? No way in hell.

-W
Agreed. Have owned enough lower end properties in the same city I am in, and they require extra attention to keep them rented. Also, populated typically with people who are not shy about calling the local housing authority on you when things aren't handled just so... Work on deals closer to home, especially considering marginal return numbers you are posting about this one.

Lmoot

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Re: which repairs matter? landlord philosophy
« Reply #6 on: November 05, 2017, 10:49:04 AM »
As someone who just spent $8k rewiring a rental property (it appeared to work fine, but failed the 4-point inspection required for landlord's insurance), I'd say see what your potential insurer says, bc they will likely be the one to make the call on necessary repairs.

If I were an OOS landlord (even with a property mgr), I personally would want something lower maintenance, and in a better area. And at that point, you might be better off spending extra to get something in your state.
« Last Edit: November 05, 2017, 10:51:46 AM by Lmoot »

nereo

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Re: which repairs matter? landlord philosophy
« Reply #7 on: November 05, 2017, 11:17:24 AM »
[lots of good points]
Run away.
my thoughts as well. The odds are stacked against you here.
"Do not confuse complexity with superiority"

ryanht13

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Re: which repairs matter? landlord philosophy
« Reply #8 on: November 06, 2017, 06:05:40 PM »
The agent told me the current owner of the property has a tenant lined up for $795/mo. Over 1%
He owns a property management company. This is also HIS agent saying this.

Without having a plumber or electrician out, i suspect repairs to cost about $3000.

tralfamadorian

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Re: which repairs matter? landlord philosophy
« Reply #9 on: November 06, 2017, 07:00:01 PM »
Hey, you do what you want. But you have several experienced landlords here letting you know that this property is a dud. It's in a bad area. It's been "flipped" but someone who didn't even bother to do critical CapEx (current leaks are critical) on the property. The small monthly cash flow will be negated again and again by vacancy, repairs and turnover costs. Most D class aficionados will not even touch a property for less than 2-2.5% due to the high turnover and vacancy costs of that asset class.

If you want to move ahead anyway, that's your choice.

waltworks

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Re: which repairs matter? landlord philosophy
« Reply #10 on: November 06, 2017, 08:07:56 PM »
Let's run some made-up but realistic numbers.

$800 a month, $9600 a year gross

-Subtract 10% (being generous) for vacancy. We're down to $8640.
-Subtract 10% (again, generous, since this is a bad area) for management. Down to $7780.
-Subtract $4000 a year for maintenance and capex (imo, incredibly generous, assuming this is a standalone SFH). $3780 left.
-Subtract property taxes. Don't know these, but let's be really optimistic and say $1000 a year. $2780 remains.
-Subtract insurance. You might be able to get a cheap landlord policy for $600 a year or something, it'll depend on where you live (higher is likely, though). $2180.

So in a best-case scenario, you're going to make <$200 a month on this. Assuming you paid cash and don't have any mortgage interest to deal with. With a mortgage, you're negative cash flow every month.

Best case.

We haven't gotten into the oh-crap-my-tenants-are-making-meth or eviction costs or tenants sue you possibilities, of course. And we're not accounting for your time, because your property manager is going to call you for decisions on stuff and you're going to lie awake at night thinking about it, even if you never set foot in the place.

I mean, do what you want. I wouldn't buy it.

-W

rockeTree

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Re: which repairs matter? landlord philosophy
« Reply #11 on: November 07, 2017, 04:36:19 AM »
I inherited a house a bit like this and it’s a constant constant hassle; management that will work in the area sucks, people who would do repairs in other parts of town find their calendars full when I give the address, tenants in this price range tend to be utterly helpless about basic how-to-live-in-a-house stuff and if you’re out of town that means a pro will have to show them how to use the heat or turn off outside water for the winter or replace a filter or aerator or bleed air out of a radiator or change a bulb or or or...


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Kroaler

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Re: which repairs matter? landlord philosophy
« Reply #12 on: November 07, 2017, 07:41:06 AM »
-Just barely 1% rule, and at the bottom of the price/rent range where overhead kills you.
-Lots of stuff wrong with the house.
-D+ neighborhood
-Out of state owner

Run away. This is a money pit at best, a writeoff at worst. If you were local and handy/liked working on houses, then *maybe*. As it stands? No way in hell.

-W

I wouldn't buy this if it was next door. And certainly not out of state.

sequoia

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Re: which repairs matter? landlord philosophy
« Reply #13 on: November 07, 2017, 12:59:37 PM »
I should also mention, I live in Texas and the property is in Alabama. So definitely an absentee landlord.

Why did you pick this property in Alabama? No property that is close by in Texas? Or perhaps you or your family come from Alabama?

Regardless it does not sounds like a good property for rental - I agree with several posts above.

ryanht13

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Re: which repairs matter? landlord philosophy
« Reply #14 on: November 07, 2017, 01:15:18 PM »
From there and will probably move back in a few years (possibly self manage then). I think I painted a gloomier picture in my original post.
It's actually close (5 minutes) to downtown in growing Alabama city. I think bigger pockets would actually rate it a B-/C+ area after doing some reading. It's a safe area, just has below average schools. "Working class" area and close proximity to a growing city. Microbrewery popped up down the street, new developments announced a couple of miles away... Topgolf, etc. That whole deal.

I am in my mid 20s and have a high income. I just want to acquire a lot of doors, outsource PM, and see what happens. I stay on top of the current rental I have and it cash flows higher than my original estimates. I'm want cash flow, but i have a long time to take advantage of equity payoff, appreciation, etc. I may not be so lucky with this one, but I'll chalk it up to experience.

nereo

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Re: which repairs matter? landlord philosophy
« Reply #15 on: November 07, 2017, 02:05:27 PM »
You seem determined to carry this one through, so given that here's my advice:
Take the time and capitol now to fix all plumbing problems. Nothing will destroy your unit faster than water damage (and it often goes unnotices/unreported for far too long). Given that this was recently flipped and still has these problems a re-pipe may be in order.

I'd also seriously consider replacing the HVAC now given its age, but you may not have the cash for that.
I wouldn't expect it to cash-flow for a while, and even then a lot of this is really a bet on the future neighborhood and increasing rents, not on the fundamentals you can get now. This is why so many here wouldn't go down this route - its speculation over current profits - but so be it.
Whatever you can do now to bump that rent up closer to $1000/mo will ensure this isn't a slow bleeder.

Best of luck
"Do not confuse complexity with superiority"

Lmoot

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Re: which repairs matter? landlord philosophy
« Reply #16 on: November 07, 2017, 03:34:45 PM »
I second fixing the necessary things, no matter the cost, before getting tenants in. You really don't want to have to deal with providing emergency housing for your tenants should something major go wrong while they're there, and you are at the mercy of a repair company's timeline.

NeonPegasus

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Re: which repairs matter? landlord philosophy
« Reply #17 on: November 07, 2017, 03:57:34 PM »
I wouldn't buy it. As others pointed out, there are a lot of issues and is unlikely to flow well. I would bet that you will end up with a lot more maintenance needed than you expect. If it was in foreclosure, the previous owner certainly didn't have the dough to keep up with it and the flipper likely did piss poor cosmetic work only.

I had a landlord who owns a duplex near mine contact me about buying his. He's a decent enough guy to admit that he's selling at a bargain price because the house is about to need a lot of work. He admits the HVAC will need replacing. Based on what I just had to do to my other properties, the interior needs updated, there is a lot of potential for leaks and associated water damage, and the cedar siding and roofing is on its last legs. If I had a ton of cash, it might be worth it but after spending about $40k in the last year, I don't need the headache right now.