Multiple Recurrent Leaks - Need advice on pivot strategies.

[Sam Kay]

Hello BP fam,

Need some advice. Purchased a 3 fam in Jan 2024 built in 2016 in an appreciating expensive market across the Hudson River from Manhattan NY. 2 units were vacant on acquisition and completed rehab in July, 3rd unit tenant vacated in May and completed rehab this week. Long road to property stabilization with multiple leaks from roof and facade being the major issues we dealt with. Roof was flashed and repaired in May. I isolated face leak source and focused repair was done by mason. All 3 units going on market as LTRs this week and then I discovered 2 NEW leaks. First is from roof along 3rd floor ceiling and I could not isolate source on leak test. Roofer with no answers - claimed from dryer vents. All roof vents are capped so that’s highly unlikely. Other leak along 1st floor ceiling. Investigating 1st floor leak would be quite involved with potential sources being bathroom above but hard to say. Many other upgrades done to force appreciate. Desirables: 8 min walk to trains to NYC and 2 parking spaces.I feel the property was not built well and future leaks are inevitable. 

I will be first time REPS in 2024 but unlikely in 2025. Self managing with Hemlane Complete in 2024 only. STR a suboptimal option in this market due to restrictive ordinances.

Purchase price: $1,260,000 with 11% down @6.75% fixed 30 yr

Total Rehab costs (labor + materials) thus far: -$70,390

Cashflow to date (NOT including Rehab Costs above): -$60,237

Projected Cashflow: 3.1% with 3 LTR tenants 

Wanted the group’s expertise on options as I am considering parting ways with this property given the number of leaks that have come up in this relatively young property.

1) In 2025, 1031 into another (potentially more units) multifamily at least 20 years old.

2) Investigate leaks/Stabilize and proceed with original plan as LTR and accept uncertainty related to potential future leaks.

3) Proceed as MTR (hospitals and NYC nearby) so that can intervene on issues during vacancy periods. Accept furnishing and management costs.

4) Other

Would greatly appreciate the community's wisdom on this. Thank you!

[Evan Polaski]

@Sam Kay, regarding the first floor leak, I would hire a plumber to pressure test the property.  Are these seperately metered?  If so, you can test each unit separately, as it seems obvious that the first floor leak would be from the second floor, but water is a tricky situation.

For the roof, I would certainly get several groups out to let them diagnose the issue and bid the resolution.  Not only will you likely find vary wide price differences for the same repairs, but you will also likely get differing opinions on what is causing it.  They also make those moisture meters, that I have had roofers use in my attics to attempt to trace back sources.

As noted, in my market, if you have active leaks that you are aware of, they need to be disclosed when selling a property.  I am guessing you will encounter the same.  Maybe the market is hot enough that you could still turn a profit selling as is, but typically, sellers will ask you to take care of them before closing AND likely pay less for the property simply because there are known defects.