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Updated 4 months ago, 08/08/2024
Drowning in repairs, any advice would help
Hello fellow BiggerPockets members,
I find myself in a bit of a bind with my real estate investments. Last year, I took an aggressive approach and purchased six rental properties in the Midwest, specifically in the Cleveland and Akron areas.
A year has passed, and two of these properties have significantly drained my cash flow due to extensive repairs. Recently, my property manager informed me that an HVAC unit needs to be replaced, which will cost $7,200.
At this point, I’m considering offloading some of the properties as the current situation seems untenable. I would greatly appreciate any advice on strategies to mitigate these issues and manage my investments more effectively.
Thank you in advance for your insights.
@Marcus Auerbach appreciate the feedback, I also think 7200 for HVAC is a little high, I sourcing my own HVAC person.
@Jimmy Lieu I did, but you are right I scaled too quickly, I guess I can attribute that to sitting on the bench trying to do as much "research" (2 years) as I could then I went all in. Also looking into BRRRR with some off market deals on investor lift. Any other sites you recommend?
Quote from @Mann Phan:
Hello fellow BiggerPockets members,
I find myself in a bit of a bind with my real estate investments. Last year, I took an aggressive approach and purchased six rental properties in the Midwest, specifically in the Cleveland and Akron areas.
A year has passed, and two of these properties have significantly drained my cash flow due to extensive repairs. Recently, my property manager informed me that an HVAC unit needs to be replaced, which will cost $7,200.
At this point, I’m considering offloading some of the properties as the current situation seems untenable. I would greatly appreciate any advice on strategies to mitigate these issues and manage my investments more effectively.
Thank you in advance for your insights.
Happy to have a look we are always buying props HVAC for 7k,Im assuming you mean the A/C condenser, and ducked work, NOT just the furnace, right ?
Sorry I hear this story all the time, So many think they can go it alone, and get crushed.
Quote from @Mann Phan:
@Jimmy Lieu I did, but you are right I scaled too quickly, I guess I can attribute that to sitting on the bench trying to do as much "research" (2 years) as I could then I went all in. Also looking into BRRRR with some off market deals on investor lift. Any other sites you recommend?
The issue is as I posted 100 x, " NEVER do biz there without a team in place. I know many investors that purchased 3, 4 7 9 props and all went well as they had a team there.
Quote from @John Clark:
Quote from @Mann Phan:
Hello fellow BiggerPockets members,
I find myself in a bit of a bind with my real estate investments. Last year, I took an aggressive approach and purchased six rental properties in the Midwest, specifically in the Cleveland and Akron areas.
A year has passed, and two of these properties have significantly drained my cash flow due to extensive repairs. Recently, my property manager informed me that an HVAC unit needs to be replaced, which will cost $7,200.
At this point, I’m considering offloading some of the properties as the current situation seems untenable. I would greatly appreciate any advice on strategies to mitigate these issues and manage my investments more effectively.
Thank you in advance for your insights.
You don’t tell us how much experience you have or where you are.
I bet he was listening to the realtor, TERRIBLE idea (sorry realtors) .Realtors care about one thing, making the sale. I see it all the time. Just in the last week I spoke with those on BP they were about to overpay by 30 % and or buy a terrible prop in a terrible area. MUST have team walk it for them and provide the reno NOT just sit on the internet and think you are learning. Clearly it will fail more often than not.
Quote from @Mann Phan:
Quote from @John Clark:
Quote from @Mann Phan:
Hello fellow BiggerPockets members,
I find myself in a bit of a bind with my real estate investments. Last year, I took an aggressive approach and purchased six rental properties in the Midwest, specifically in the Cleveland and Akron areas.
A year has passed, and two of these properties have significantly drained my cash flow due to extensive repairs. Recently, my property manager informed me that an HVAC unit needs to be replaced, which will cost $7,200.
At this point, I’m considering offloading some of the properties as the current situation seems untenable. I would greatly appreciate any advice on strategies to mitigate these issues and manage my investments more effectively.
Thank you in advance for your insights.
You don’t tell us how much experience you have or where you are.
For this particular property, I was working with a team from Real Wealth, this house was advertised as a "Turnkey" property, went through inspection and all the due diligence. But I've had nothing but issues with it ever since. I just had to redo the grading and dry lock all of the basement because of leaking from the rain now this HVAC issue. If I replace this HVAC I'm already 10k in repairs on this property alone. It's only been 1 year!
NOT just the furnace, correct? To remove and replace the furnace in 1500 -1800, TOTAL,
Quote from @John Clark:
Quote from @Mann Phan:
Hello fellow BiggerPockets members,
I find myself in a bit of a bind with my real estate investments. Last year, I took an aggressive approach and purchased six rental properties in the Midwest, specifically in the Cleveland and Akron areas.
A year has passed, and two of these properties have significantly drained my cash flow due to extensive repairs. Recently, my property manager informed me that an HVAC unit needs to be replaced, which will cost $7,200.
At this point, I’m considering offloading some of the properties as the current situation seems untenable. I would greatly appreciate any advice on strategies to mitigate these issues and manage my investments more effectively.
Thank you in advance for your insights.
You don’t tell us how much experience you have or where you are.
Buying crap is where the money is IF you have a team in place :) This person did not. Its ALL about price
Quote from @Mann Phan:
Apologies, this was my first post so bear with me adding all the details, I do have a home warranty. I was part of this REI group called Real Wealth, on this site they have vetted REI teams in diffrent GEOS, definitely learning REI with some hard knocks, but I'm not going to stop. I have not agreed to anything yet which is why I'm posting on BP for guidance.
Feel free to reach out. I can have the props walked and tell you the REAL story. Happy to help you
Quote from @Mann Phan:
Thank you all for the advice, truly appreciate everyone taking the time to respond. So my PM just sent me a message and said there are no other options besides replacing the unit. If anyone has a solid HVAC person out in Cleveland ohio, specifically in Garfield Heights, please have them contact me on BP. Have a great weekend my fellow investors!
Quote from @Janet Chan gomez:
That first year after buying the property, if you are "truly cash flowing" I would place that aside for any capEx that arise. It is hard to cash flow the first year because many times like other people have mentioned above, properties are repaired to look nice or to pass inspections (point of sales)but it may not reflect the true nature of the property. If you got the extra cash to repair HVAC I would invest in that, if you are on a tight budget maybe ask someone to lend you some money. You got this Mann!
I am also an investor looking into Cleveland and Akron. Let me know if I can be of help.
Not 100% accurate, ALL my props cash flow based on cash purchases never less then 15% net, most 20%. Its ALL about doing the reno correctly, Roof, and furnace/HW tank if older then 10yearsish, replace, all new cosmetics including LVP through entire, ect. This gentleman was " sold a bill of goods" I see it all the time.
Quote from @Mann Phan:
Best as I could, Im located in California.
I know many investors from there that have been investing in Cleveland for many years. Heck I know people from Europe that buy there as well. I live in FL and buy /sell their weekly. You were lied to , sorry,
Quote from @Mann Phan:
Thank you all for the advice, truly appreciate everyone taking the time to respond. So my PM just sent me a message and said there are no other options besides replacing the unit. If anyone has a solid HVAC person out in Cleveland ohio, specifically in Garfield Heights, please have them contact me on BP. Have a great weekend my fellow investors!
BTW, very few props have C/A, so if it broken who cares. When it comes time to sell down the road, then maybe replace it. But for now, they can get window units like 99% of the other props. In about 30 days air conditioning will not be neede
I want to second the above comment - if your repairs are making you think of selling the property, the first thing I would do is take a hard look before making each repair. I don’t know about Ohio but here in California a property must have a heater to be habitable, however air conditioning is entirely optional.
See if you can get the AC repaired for significantly less than $7k. If you cannot, get the tenants a couple of window AC units at $500 each, and tell them the central AC is broken and it is not possible to repair it at this time.
Looking ahead, have a knowledgeable mentor, investor or inspector look at some of these properties, ideally with you in person. Decide if you can ride the next couple of years with the current cash flow, plus any money you can bring in. Over time, unless they are true lemons, you should be able to stabilize the properties, raise rents and start cashing in.
Quote from @Stetson Oates:
Hello,
Sorry for the issues you are having. I will say for HVAC units, sometimes it depends on the contractor you are using. I've had contractors come to my properties and tell me I need an entire new system at a cost of $6,000. At that point I remembered I had a home warranty policy. I placed a claim, and the tech came and replaced a capacitor for $75. I got the tech's contact information and used him on all properties. He ended up being a fantastic contact for me.
Many times it is a capacitor. That is an easy fix.
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@Mann Phan When you went to buy you should have done an analysis of a few things; market for property value basis and market in general - rental market and viability of that - CAP-X, to assess exactly where everything in the structure is at, how much life left, and formulate what impactors are potential to come and how soon.
Sounds like you skipped cap-x and just took a hit of "hopeium" instead. ya, that stuff will rot your brain and drain the wallet fast.
Before make ANY decision going forward, you need to get informed.
You need to get a detailed cap-x eval on the property. Because maybe there is more expenses soon coming, maybe your now through it all, point is you gotta get informed.
Going forward, STOP blind trusting people, especially people who say "trust me" those are the #1 people you should be most skeptical about.
Get informed. Find the age of every main component. Find it's life expectancy. Cost to replace. Than it's just doing the math of things.
- James Hamling
@Mann Phan First, I want to compliment you on getting into real estate investing and purchasing six rental properties. I think you are experiencing what it is being an investor. From the information you have provided and don't even feel that you have done anything wrong. There might be areas for you to improve, but we all get an investment at some point that doesn't seem to work out.
I feel there are several comments saying you might not have done well with inspections, but even if you had a great inspector come out and say the HVAC was great, that doesn't mean a week after I buy the house that it may not die on me. It could even be only 3-5 years old. There are just expenses that come up. As an investor we just have to minimize our risks and plan accordingly. If the HVAC was only 3-5 years old, I probably wouldn't think it was going out and maybe not have as much cash saved for it, but if it was 20-25 years old I would think it will die soon I better be prepared.
You just need to take a look at your properties, understand the risk profile of each in terms of when certain CapEx items might need replacing, and decide if that is the risk profile you are comfortable with. If it is not, then maybe it is a good time to sell. If it is, great, because real estate investing really is a long-term investment. Don't let your emotions get the best of you because you see your cash flow going down with all these repairs. Follow your strategy and stick with it.
- Bryan Montross
Closing on a loan assumption any day now in Whitestown, Indiana. Turning my primary in Plainfield, IN into rental property. Cash flow not a priority as much as tax advantage and reducing my active W2 income. The current tenant is my 80yro mom. She keeps my house which is really “her" house emaculate. I'm not planning to put in LLC at this time bc it's mom! This is my only rental.
My question is what if anything do I need to do other than let my CPA know when I close. Any expense tracking you would recommend so I can be prepared tax time next year?
Quote from @Jonathan Bui:
Quote from @Stetson Oates:
Hello,
Sorry for the issues you are having. I will say for HVAC units, sometimes it depends on the contractor you are using. I've had contractors come to my properties and tell me I need an entire new system at a cost of $6,000. At that point I remembered I had a home warranty policy. I placed a claim, and the tech came and replaced a capacitor for $75. I got the tech's contact information and used him on all properties. He ended up being a fantastic contact for me.
Many times it is a capacitor. That is an easy fix.
Well, it was not, the unit is VERY old, the coil is leaking (directly into the electric furnace, but that's another story, it too is about 30 years old). The water pan was about to overflow as the drain was clogged. Unfortunately, he was told this property was 100% renovated and turn-key, well it was not. Sad to say another OOS investor was taken advantage of.
Hey BiggerPockets,
I really appreciate all the replies, advice, and guidance. I'm extremely grateful to have a community of real estate investors to reach out to for help. Shout out to @Bob Stevens—he helped me figure out some stuff with my property and had one of his guys out within a few hours, which ended up saving me a significant amount. I appreciate you, Bob, and thanks for the recommendation.
Hey @Mann Phan, I hate to hear you're having a rough time. But, to be honest, we see this a lot with newer REIs.
Did you account for the CapEx timelines for each rental prior to purchasing? That usually gets worked into the numbers for the deal.
And, just a general note about rentals, they are great for building long-term wealth if the cash flow is there. But, at the end of the day, rentals are usually a high CapEx / low cash flow business model. However, you can conduct a proper analysis and due diligence prior to purchasing that will mitigate cash flow losses.
From a management standpoint, are you charging enough for rent? Can any of your rentals be converted to an MTR or STR?
And, do you have accurate and up-to-date bookkeeping records in place so you have the appropriate data at your fingertips to be able to make strategic decisions for each property?
- Max Emory
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