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Updated about 3 years ago on . Most recent reply
First Rental Property - Needs Roof Replaced
Currently in the process of buying my first rental property, a duplex, in Akron, Ohio. Just got the inspection report back today and it looks like the roof is pretty worn and would need to be replaced in the short term (estimated age 20 yrs). There are a few other repairs like a broken window, and cracked joist, but don't seem as expensive as a roof replacement. I feel like I'm already paying a premium rate for the house in the market (around $130k), close to the highest comps in the neighborhood, and don't know if going through with the purchase makes sense.
The property would cashflow about $550 a month (6600 yearly) after all expenses (insurance, taxes, prop manager, mortgage, etc) for a cash on cash of 18%. Basically the first two years is going to the roof and maintenance expenses. The property is already 123 years old. However with some upkeep upfront this could return some really nice cashflow for a while.
What would you do in this situation?
Most Popular Reply
#4 All Forums Contributor
- Plymouth, MI
I would say that upon inspection , because of the roof, your not going through with the deal...unless, the roof is replaced before closing, by the seller. Then, if the seller agrees to this, you agree to increase your offer by the cost of the roof...plus 10%. So, if the roof costs $5k, your offer will increase by $5,500. On the surface it appears as though the roof will cost you more than if you just replaced it after...and you'd be wrong.
If you replace it after you close, you're paying in cash. That means it will cost you the full $5,500. If you do it the way I suggested, it will only cost you around $25/month, or $300/year. That means a reduced CF by that amount, but nothing out of pocket. So your tenant will be the one buying the roof for you.
Would you rather pay $5000 in cash, and have to wait until you recover that money from the cash flow before you break even on it, or would you rather have your tenant pay for it and your CF reduced by $25/month, and nothing out of pocket?