Things aren't going well. Any advice?

[James Gillice]

Hello BP,

I bought my first rental property in early 2022, an out of state (KCMO) SFH. I bought from a turnkey company that is endorsed by BP. The home was not "turnkey" per say, but was sold by another investor through them (not sure the exact details, but this fact was disclosed beforehand). I got in before rates skyrocketed (4.25%). I used a HELOC on my personal residence for the down payment. Things went really well for the first year. Even with HELOC payment and maintenance costs, the cash was flowing and I was making several hundreds of dollars every month. I was planning repairs and upgrades while also paying down the HELOC in preparation to buy a second property. I though I had this figured out.

Then in early 2023 the repairs started increasing, including a major repair. A busted sewer line near the street (but not close enough to the street for the city to be responsible) cost me about 6K, plus maybe 3-4K in other repairs and maintenance around the same time (some elective, not mandatory. Like I said the cash was flowing). Plus I lost out on rent for over a month as the house was uninhabitable. I used up every bit of reserves and had to use the HELOC to make payments for a while. Now the tenant has moved (end of Nov) and I've just got the inspection report and repairs needed. The house has been pretty trashed, probably 12k in repairs.

The other side of this situation is the fact that since I bought the house, I've been laid off from work twice. I worked for a year in a just barely (not) enough to get by job. So things have been incredibly tight financially. I now have a new job that pays "enough" but this recent hit is making me re-consider my options going forward. Here are various ideas and factors that I'm considering...

1. Sell the home and cut my losses. Lose my 4% interest rate and search for another property. A year ago I could have sold and been debt free. Now I'm not going to get enough to pay it all off.

2. Keep the house but find a better property manager. Renters Warehouse is the manager that came with the house. They have been unsatisfactory but I don't have anything to compare to so I don't know if it's worth the effort to find a new one. Their repair processes take forever and they are horrible with communication. And theres about 10 points of contact so I never know which person I need to talk to to get something done. All information is second or third hand. They don't allow me to be as "hands off" as I'd like to be. Any recommendations in the Kansas City area?

3. Keep the house and try to find better vendors/quotes for the repairs. I've always gone with the PM recommendations because I really don't have time to do the research myself. But I've got to believe there are more competitive offers out there. Any recommendations in the Kansas City area?

4. Make the needed repairs as quoted, keep the same PM, and hope this bad patch is behind me. I'll be pushing the current limit of my HELOC (only 20k left) which will be bad if more emergencies come my way.

5. Send previous tenant to collections for back rent and repairs needed. Is this a complicated process? How much will it cost me up front? Will it even work?

In typing this out, I realize that I will need to seek better vendors and a new PM if I'm going to keep the property. So basically the question I have is...do I sell or keep the property at this point? Any suggestions or advice of any kind for this situation would be great.

Thanks in advance.

[Caleb Brown]

Quote from @James Gillice:

Hello BP,

I bought my first rental property in early 2022, an out of state (KCMO) SFH. I bought from a turnkey company that is endorsed by BP. The home was not "turnkey" per say, but was sold by another investor through them (not sure the exact details, but this fact was disclosed beforehand). I got in before rates skyrocketed (4.25%). I used a HELOC on my personal residence for the down payment. Things went really well for the first year. Even with HELOC payment and maintenance costs, the cash was flowing and I was making several hundreds of dollars every month. I was planning repairs and upgrades while also paying down the HELOC in preparation to buy a second property. I though I had this figured out.

Then in early 2023 the repairs started increasing, including a major repair. A busted sewer line near the street (but not close enough to the street for the city to be responsible) cost me about 6K, plus maybe 3-4K in other repairs and maintenance around the same time (some elective, not mandatory. Like I said the cash was flowing). Plus I lost out on rent for over a month as the house was uninhabitable. I used up every bit of reserves and had to use the HELOC to make payments for a while. Now the tenant has moved (end of Nov) and I've just got the inspection report and repairs needed. The house has been pretty trashed, probably 12k in repairs.

The other side of this situation is the fact that since I bought the house, I've been laid off from work twice. I worked for a year in a just barely (not) enough to get by job. So things have been incredibly tight financially. I now have a new job that pays "enough" but this recent hit is making me re-consider my options going forward. Here are various ideas and factors that I'm considering...

1. Sell the home and cut my losses. Lose my 4% interest rate and search for another property. A year ago I could have sold and been debt free. Now I'm not going to get enough to pay it all off.

2. Keep the house but find a better property manager. Renters Warehouse is the manager that came with the house. They have been unsatisfactory but I don't have anything to compare to so I don't know if it's worth the effort to find a new one. Their repair processes take forever and they are horrible with communication. And theres about 10 points of contact so I never know which person I need to talk to to get something done. All information is second or third hand. They don't allow me to be as "hands off" as I'd like to be. Any recommendations in the Kansas City area?

3. Keep the house and try to find better vendors/quotes for the repairs. I've always gone with the PM recommendations because I really don't have time to do the research myself. But I've got to believe there are more competitive offers out there. Any recommendations in the Kansas City area?

4. Make the needed repairs as quoted, keep the same PM, and hope this bad patch is behind me. I'll be pushing the current limit of my HELOC (only 20k left) which will be bad if more emergencies come my way.

5. Send previous tenant to collections for back rent and repairs needed. Is this a complicated process? How much will it cost me up front? Will it even work?

In typing this out, I realize that I will need to seek better vendors and a new PM if I'm going to keep the property. So basically the question I have is...do I sell or keep the property at this point? Any suggestions or advice of any kind for this situation would be great.

Thanks in advance.

Renters warehouse is a large PM, often with larger PM companies they don't do a good job managing. The sewer line should have been scoped when you bought it, I would assume that repair should have been spotted then not 1 year in. Turnovers happen and places get trashed but it seems the tenant was a dud. I would probably find another PM if you keep. On keeping or selling I'd say it depends where the property is in KC, your equity and ultimately is it worth diving into more risk for you. Personally I'd sell not based off the property but you are tight on your budget. Until you get your job figured out and are in a better spot I'd hold off investing. It's a long game but short term if you don't have the $$ to keep you afloat you'll be in a worse position.