First Rental Property - Needs Roof Replaced

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First Rental Property - Needs Roof Replaced

Kaushik Mahorker
Member since 2021 · 8 posts · 3 votes

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?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y

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?

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  • Kaushik Mahorker
    OP
    Member since 2021 · 8 posts · 3 votes
    4y

    @Theresa Harris Got an estimate for the roof, one at $18,000 and one at $12,000. Even $6000 out of pocket for a home worth only $130K seems ridiculous. Additionally found out water heater is at end of life and got quoted for $3000. I see repairs totaling from $16,000, even if seller can pay half $8000 out of pocket is way too much for a home worth only $130,000 (DP is 32,500 --> repairs are adding 33% to my up front costs and I'm not getting the property at rehab prices)

    @Alecia Loveless What are all the factors do you consider into this 8%, I'd like to know how to better gauge older properties - what percent do you leave for maintenance monthly? After the repair quotes I'm back down to about 12% CoC, and there tends to be little appreciation in the Akron area.

    @Jared Lichtin Appreciate the offer, but I am actually located in California! Also I tend to find it harder to do repairs/rehab without being in the area or a strong network of professionals.

    @Eric James Amazing you've got that network setup, would love to know you got crew together!

    Asked the sellers to make the repairs before closing, and going to see what they say.
     

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y
    Originally posted by @Kaushik Mahorker:

    @Theresa Harris Got an estimate for the roof, one at $18,000 and one at $12,000. Even $6000 out of pocket for a home worth only $130K seems ridiculous. Additionally found out water heater is at end of life and got quoted for $3000. I see repairs totaling from $16,000, even if seller can pay half $8000 out of pocket is way too much for a home worth only $130,000 (DP is 32,500 --> repairs are adding 33% to my up front costs and I'm not getting the property at rehab prices)

    @Alecia Loveless What are all the factors do you consider into this 8%, I'd like to know how to better gauge older properties - what percent do you leave for maintenance monthly? After the repair quotes I'm back down to about 12% CoC, and there tends to be little appreciation in the Akron area.

    @Jared Lichtin Appreciate the offer, but I am actually located in California! Also I tend to find it harder to do repairs/rehab without being in the area or a strong network of professionals.

    @Eric James Amazing you've got that network setup, would love to know you got crew together!

    Asked the sellers to make the repairs before closing, and going to see what they say.
     

    Most things cost the same regardless of the  price of the house (eg hot water tank is the same for a $100K and $500K house).  If they won't make the repairs, then it seems like you've made up your mind which is good.

    0Reply
  • Kaushik Mahorker
    OP
    Member since 2021 · 8 posts · 3 votes
    4y

    So the seller refused to make the repairs I wanted and the contract fell through - but now THEY WANT TO SUE ME out of my EMD...?!?!

    Made another post regarding the details: https://www.biggerpockets.com/...

    These sellers have just been so difficult to work with :(

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    4y
    Originally posted by @Kaushik Mahorker:

    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?

    Can you buy a similar property at same price with a new roof?

    If yes, buy that one.

    If no, buy this one.

    1Reply
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