Maintnence repairs, and appliance replacement questions

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Maintnence repairs, and appliance replacement questions

Ta'Voris Murray
Member since 2017 · 4 posts · 3 votes

Im currently in the process of looking at a duplex that is already completely leased out and has been for the past 12 years. The owner is selling because they are looking to purchase a new property quickly, so the deal that I would get on this property is a good one to say the least. With this being my first rental property (potentially if all plays out well), Im hard press to think about the what if's. The biggest one being, what if their stove or any other major appliance goes out? How could I possibly afford to replace something so large without going under? I know that it's a BIG what if, but that question has been haunting me since I figured out what a real estate investor is. Im kinda hopping into this with no money reserves and Im just curious if its even a good idea to keep pursuing this property if I dont have anything on hand for any future issues. 

I guess to get down to the soups and nuts of the post, the question is this: How do Investors handle the replacement of large appliances, and any other technician fees from a handy man being sent out by either myself or a property manager? Is there a solution that wouldn't require me to have the money necessary to fix any problem all at once?

Sorry if this is a rookie question, but im for sure a rookie. 

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Ta'Voris Murray:

Decent used appliances can be picked up for under $200. If that's a concern for you, then you are in the wrong business. One bad Tenant can cost you $5,000 without even breaking a sweat!

Wise investors are able to withstand the obstacles by planning ahead. Always keep a reserve fund to handle maintenance, vacancies, major repairs, etc.

This is not an exact science. It depends on your financial strength, the quality of the property, how many properties you own, etc.

I like to start with one major expense and three months of vacancy. Imagine if you had one single-family home. The tenant fails to pay their last month's rent and leaves the place needing new flooring and paint. It will take two months to turn it around and get it rented. That's three months of mortgage and utilities, the cost of flooring, and the cost of painting. That's a pretty common scenario and could cost you $10,000 - $15,000 so that would be a good starting point for your reserve.

But there's more!

What if you're a cardiologist with no debt and making $250,000 a year? You could probably afford $20,000 without much impact on your personal budget. If you're a single mom with student loans, a car payment, and living paycheck-to-paycheck, then $20,000 would be devastating and a reserve is critical.

What if you have an apartment complex with 20 units? Do you save three months of vacancy for each unit and $50,000 for the roof replacement? That would be around $90,000 sitting in a savings account! At this point, I would recommend having a line of credit to cover these things so you don't have money sitting in the bank doing nothing when it could be put to work.

I have 33 units, no debt except for mortgages, and excellent income. I can pay for all my problems using the cashflow from my current rentals. I also have a $175,000 line of credit at the ready if something catastrophic happened. A reserve is unnecessary, but I still keep around $15,000 - $20,000 in my account.

The point is, you should sit down and assess your personal finances to determine what the worst-case scenario may look like, how much you would need to cover it without impacting your life, and whether you will need to build a reserve.

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  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    Get a GREAT inspection done so you can reduce your chances of a major expense as long as possible.

    Even with that, there's no way to cover every possibility.

    You could try purchasing a Home Warranty, but read the fine print as many really aren't worth it.

    How much are you credit card limits - which you could use?

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    1Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    3y

    I am sorry to tell you but replacing an appliance for a duplex rental is not that big of an obstacle.  AC issues, roof leak issues, slab leaks, are more daunting to overcome when low on funds.

    You are playing Russian Roulette if you start out owning investment real estate with no reserves at all.  Probably should try and delay your buy for 6 months if you can with the seller and save $1000 a month or get a side hustle.  

    When you were a baby, you learned to crawl before you walked and you walked before you learned to run.  Same  for investment real estate, reserves are a must before you lay down the deposit.  Cheers.

    3Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    You should have enough set aside to cover a fridge or stove.  They aren't that expensive or rather they don't need to be that expensive.  You could also put them on a credit card and pay them off.  Make sure you keep money in your reserves.  Also put aside a set amount each month to build up your savings for things that will need to be replaced (eg roof).

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    3y

    I have to echo joe and Theresa. There isn’t an expensive appliance. Stoves and dishwasher are $500 or less, same with laundry units. A fridge might run you $1,000, but again this can not be considered a bug expense. 

    You want to see a big expense? The ac unit goes out and the quote is $9,000. And the tenant doesn’t pay rent because they can’t live in the unit because it’s so hot. You have to be ready to deal with that on day 2. What if there’s a fire on the shared wall and neither tenant pays? If your lender is worth anything, they should force you to have 6 months of reserves minimum. And that might not be enough. 

    The MOST dangerous time is 1-4 or 1-6 units total. Once you've got 8-10 units, especially SFR where the same problem won't affect two tenants, you can usually cover any loss with the other units' income.

    I’m sorry if we sound callous, but you’re talking to people who DREAM of a bad appliance being a big deal. I’ve had 3 main water liens fail, 2 toilet supply lines fail and flood different Properties, a $12,000 bill when Both units went out on a property. Heck, my newest property only came with a stove/dishwasher/microwave. I’m going to buy 2 fridges, 2 clothes washers, and 2 dryers for one house this week. I hope to save a much with a Labor Day sale and only spend $10,000? The backyard is just dirt, that’s another $15k?

    This leads back to a popular quote:  if you NEED a property to have positive cash flow of $100-$200, you are simply not ready to invest in real estate. That won’t cover one vacancy, one failure to pay, one major repair. If you insist on getting started partner with someone who doesn’t need the cash flow. Good luck whatever you decide. 

    2Reply
  • Richard F.
    Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
    3y
    Quote from @Ta'Voris Murray:

    Im currently in the process of looking at a duplex that is already completely leased out and has been for the past 12 years. The owner is selling because they are looking to purchase a new property quickly, so the deal that I would get on this property is a good one to say the least. With this being my first rental property (potentially if all plays out well), Im hard press to think about the what if's.


    Aloha,

    You state that it has been occupied for 12 years. Odds are high that little to no updates have occurred, and everything is, at best, tired looking, if not "on it's last leg". If you are concerned about being able to replace a basic appliance, as a self proclaimed "rookie" you are just asking for nightmares. When was the property built? Is it a legal duplex? Do you know what documentation you should request in your purchase offer? Do you have a copy of the local LL/Tenant laws? Do you know what an eviction would cost, and what the process would be?

    You are considering the first or second most costly purchase of your life at this point, you need to be sure about what you are planning.
    0Reply
  • Julien J.
    Investor · CO · Member since 2016 · 757 posts · 1k+ votes
    3y

    I'd look into a home warranty and hope the major system breaks while on warranty.

    The cost of a service call is usually around $75 and if they cannot fix, it will be replaced it with a like kind unit. I always take the cash and upgrade the appliances.

    I've had bathroom fans, food disposals, washers, dryers, microwaves and a furnace replaced. The ROI is positive, but the customer experience is the downside.

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Ta'Voris Murray:

    Decent used appliances can be picked up for under $200. If that's a concern for you, then you are in the wrong business. One bad Tenant can cost you $5,000 without even breaking a sweat!

    Wise investors are able to withstand the obstacles by planning ahead. Always keep a reserve fund to handle maintenance, vacancies, major repairs, etc.

    This is not an exact science. It depends on your financial strength, the quality of the property, how many properties you own, etc.

    I like to start with one major expense and three months of vacancy. Imagine if you had one single-family home. The tenant fails to pay their last month's rent and leaves the place needing new flooring and paint. It will take two months to turn it around and get it rented. That's three months of mortgage and utilities, the cost of flooring, and the cost of painting. That's a pretty common scenario and could cost you $10,000 - $15,000 so that would be a good starting point for your reserve.

    But there's more!

    What if you're a cardiologist with no debt and making $250,000 a year? You could probably afford $20,000 without much impact on your personal budget. If you're a single mom with student loans, a car payment, and living paycheck-to-paycheck, then $20,000 would be devastating and a reserve is critical.

    What if you have an apartment complex with 20 units? Do you save three months of vacancy for each unit and $50,000 for the roof replacement? That would be around $90,000 sitting in a savings account! At this point, I would recommend having a line of credit to cover these things so you don't have money sitting in the bank doing nothing when it could be put to work.

    I have 33 units, no debt except for mortgages, and excellent income. I can pay for all my problems using the cashflow from my current rentals. I also have a $175,000 line of credit at the ready if something catastrophic happened. A reserve is unnecessary, but I still keep around $15,000 - $20,000 in my account.

    The point is, you should sit down and assess your personal finances to determine what the worst-case scenario may look like, how much you would need to cover it without impacting your life, and whether you will need to build a reserve.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    4Reply
  • Ta'Voris Murray
    OP
    Member since 2017 · 4 posts · 3 votes
    3y

    I really appreciate all of you guys's input! It has really helped me realize what I need to do moving forward. Taking all of your advice into account, I know I need to have some sort of reserves set aside I like the idea of having a line of credit for any major issues, and I will also probably just let this deal slip through. It's better to get into something well prepared than to just dive in without my ducks in a row. 

    Thanks.

    1Reply
  • Ta'Voris Murray
    OP
    Member since 2017 · 4 posts · 3 votes
    3y
    Quote from @Richard F.:
    Quote from @Ta'Voris Murray:

    Im currently in the process of looking at a duplex that is already completely leased out and has been for the past 12 years. The owner is selling because they are looking to purchase a new property quickly, so the deal that I would get on this property is a good one to say the least. With this being my first rental property (potentially if all plays out well), Im hard press to think about the what if's.


    Aloha,

    You state that it has been occupied for 12 years. Odds are high that little to no updates have occurred, and everything is, at best, tired looking, if not "on it's last leg". If you are concerned about being able to replace a basic appliance, as a self proclaimed "rookie" you are just asking for nightmares. When was the property built? Is it a legal duplex? Do you know what documentation you should request in your purchase offer? Do you have a copy of the local LL/Tenant laws? Do you know what an eviction would cost, and what the process would be?

    You are considering the first or second most costly purchase of your life at this point, you need to be sure about what you are planning.

     Didnt mean to come here and sound like an expert, so I went with the term "Rookie" its not self proclaimed by any means I just thought that's what I was in comparison, but if pre rookie, or worm works better for what I am in comparison to all you good folks here, lets just go with that. The unit was but in 86'. renovated in 15' (to include new appliances) . I have the t12 on the property. I know where to find the LL/Tenant Laws and I have an idea of eviction costs in the county as well...

    Look, sorry I asked. It was a dumb question and not all questions are good questions. Noted. Love the responses and motivation from you guys. But I now know im on the right track and barking up the right tree. 

    Yall have a lovely week and month.I hope all of your endeavors are good ones, and you accomplish all the goals you set. Much Love. 

    0Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    3y

    If a stove or refrigerator replacement is going to sink you, then you arent ready to buy a duplex. There can be WAY bigger expenses than that....especially if its 12 years fully occupied with little upkeep done

    Any chance you can find a partner? Dont give up so easy...... run the numbers, do the inspections....if its a good deal, then find a way..... find a trustworthy partner that help you get the first deal. 

    1Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Ta'Voris Murray One thing we try to do with our larger properties is to buy the same appliances for each unit. So if you buy a LG100C3x fridge for side 1 then when side two fridge goes out buy the same model. That way if one fridge dies you can save it for parts. Such as if the other side is still working but the tenants kids color all over the door in permanent marker then you already have a spare door from the broken fridge. Obviously this works better with more units and if you have a place to store the old appliances. But it saves me a ton of money.

    1Reply
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