What's your avg move-out reno cost? Still cash flowing?
Most Popular Reply
Jen L. Not surprising if you have carpet, need paint and so forth. There is a huge difference between vacancy ( lost rent) and vacancy cost. ( lost rent plus turn over cost). That's why walk through a are so important!!Now is the time to rent proof your property. Instead of carpet put in laminate or some other flooring. Use semi gloss paint. You can wash it sometimes and save some paint cost. Make sure your smoke detectors and co2 detectors are working. Put in the new smart locks to save re-keying cost next time. Take lots of pictures so you can recoup all tenant damage on the next turn over. Put in door stops to keep doors from hitting the walls. Just a few tips. Put in new toilet valves. I had a family with 8 not exaggerating here 8 children. Turn over was 8 grand. There was toothpaste on the ceiling!! My son was appalled. He said I was loosing money. Maybe but they paid over $40k in rent. Always on time and never late. In those days that house would set vacant for 2-3 months before renting. I was damn glad to trade 8k for 40k. In rent. Besides I was upside down in the property. The option was a short sale or give the house up. Lost money?? Probably. Today it cash flows after ALL expenses $300 a month. That's after the recent cash out refi. I took 21k out of that house last month. Wise investing? (At the time?)?Hell no! Better than the options I had back then? Yes. Welcome to land lording! RR
74 Replies
- Jen L. Not surprising if you have carpet, need paint and so forth. There is a huge difference between vacancy ( lost rent) and vacancy cost. ( lost rent plus turn over cost). That's why walk through a are so important!!Now is the time to rent proof your property. Instead of carpet put in laminate or some other flooring. Use semi gloss paint. You can wash it sometimes and save some paint cost. Make sure your smoke detectors and co2 detectors are working. Put in the new smart locks to save re-keying cost next time. Take lots of pictures so you can recoup all tenant damage on the next turn over. Put in door stops to keep doors from hitting the walls. Just a few tips. Put in new toilet valves. I had a family with 8 not exaggerating here 8 children. Turn over was 8 grand. There was toothpaste on the ceiling!! My son was appalled. He said I was loosing money. Maybe but they paid over $40k in rent. Always on time and never late. In those days that house would set vacant for 2-3 months before renting. I was damn glad to trade 8k for 40k. In rent. Besides I was upside down in the property. The option was a short sale or give the house up. Lost money?? Probably. Today it cash flows after ALL expenses $300 a month. That's after the recent cash out refi. I took 21k out of that house last month. Wise investing? (At the time?)?Hell no! Better than the options I had back then? Yes. Welcome to land lording! RR
@Ralph R. Thank you so much for your comment! My tenant had 4 kids and railing was broken, toothpaste in the drawers, etc. We had laminate flooring and glass paint but still...They also paid rent on time. If I don't have appreciation on the property, it would be a very tough pill to swallow.
@Jen L. I think that's where the HOLD in buy and hold comes in. Remember you can take the loss on your taxes and they also paid down the. Principal a little bit. Also consider this. If you paid a down payment on the property how long does it take the tenant to pay you back that down payment?? When you figure ALL expenses I bet you actually are cash positive less than $300 a month. If you put $20,000 down with a positive after all expenses cash flow of $300 a month its 66 months or 5.5 years just to get your initial down pmnt back. How much spending power did your dollars loose in that 5.5 years?? The real money or wealth in real estate isn't in cash flow. It's in buying right and appreciation and you can't count on appreciation. The renter is really just a place holder. He pays all expenses on the property. That's about all he can do for you. It's up to the investor to force value add or some how increase the properties worth. Might change your out look the next time you buy huh? RR
@Ralph R. You're absolutely right! I find out more and more that it's all about appreciation. Since my property is in the SF Bay Area, I'm lucky to have good appreciation. However, most people in BP are cash flow buyers. After $8k of move out or other unexpected cost, I wonder how do they cash flow?
@Jen L. While cash flow is important, I think its an illusion. Ive learned to look a lot farther down the road than most investors on here do. they think they made $800 dollars CF this month but forget they paid $4000 dollars for the AC unit repair last year. I use it as my measure of safety. The more cash flow I have the safer the the property is if something happens. CF pays some bills and helps buy more properties but its never going to make you rich. I don't like to rely on appreciation, but I try to force it when I can. I do some light rehabs, keep rents pretty current on my multi familys, and do refi's to get equity out. The easiest money is made when you buy. At least that's how I see it. I don't get many killer home run deals like I see on here sometimes. but I don't buy anything that I don't think is going to give me some instant equity either. Its a fine line.
If you watch your renter do an inspection at 3 months after signing then maybe 6 months then maybe every 6 months to a year after that (you will know how often after you see the house a couple times) that might help a little with turn over. The other trick I've learned is if they are late with the rent post the eviction as soon as you can. They don't go dark that way instead they will contact you. when they do contact you, make whatever arrangements you want about the rent. AND schedule another inspection when they pay the rent. late rent always earns them an inspection or two. Its like potty training kids LOL
RR
@Ralph R. Thank you for sharing your wisdom!! I totally are in the same line of thinking with you. I just can't understand how people can quit their jobs after 2 years buying cheap properties that will not appreciate.
How are you finding deals now? How's the market in Alaska?
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes9y
Toothpaste in drawers and a broken railing doesn't sound very expensive to me. What is/was the extent of damage? And how much of that damage was just existing, depreciated features? IE if the carpet is worn out, and was already virtually worn out, that's not cost of tenant turnover, that's just a normal capital expenditure that is (or should have been) calculated as part of your overall costs of ownership.
To answer your question, our move-out reno costs are virtually zero. All of our units are rehabbed before they are put on the market for the first time, so they have a relatively long shelf life before features start needing to be replaced (counters, flooring, etc). We also use, to the extent possible, tenant-proof features so to prolong the useful life of fixtures.
Skyline Properties @Jen L. the Alaska market is shaky right now. Most will tell you it's on a peak and about to dive at least on the road system. Here where I live in the "Bush" its pretty strong due to a new hospital being built and a large influx of people associated with that.
I invest out of state. here the damages are way worse than you could imagine. no plumbers, no electricians, no professional carpenters to speak of, no inspectors to check work. if you wire your house and it burns down oh well. The hole in the wall here could be from a shot gun or who knows what. Its too rough of a place to be a land lord for my nerves. Bush Alaska is still the last frontier. There's good and bad with that. imagine what happens when the heat goes out because the electricity went off. its -30 degrees out and your 600 gallon water tank freezes and busts. its difficult to get the place warm enough to even get the water out! and now you gotta tear the walls apart to get fix the water lines. and do it yourself because there is no Plumber!
As 2 the ones that do quit without that solid income foundation and owning war zone rentals I bet if you checked its a short term retirement or big story all together. If you can call it a retirement. Its not passive if they are self managing. I think markets differ as well. some appreciate better yours for example while others give a little better CF and poorer appreciation. when the first correction occurs the guy who bought a bunch of cheap properties (Ben Lybovich calls them pigs) will be most likely in trouble. I never saw to much of that here on BP until the last couple years or so. There isn't a well seasoned investor on here that doesn't have a story that's cost them a bucket load of money. when I get done doing an analysis Im lucky to have a CF of $150 -200 a month. but I try to allow for all the costs. CF will never make you rich. its your own money being returned to you by the tenant a little at a time. it gets easier as you aquire properties and over time your rents go up and mortages stay the same. RR
@JD Martin The single item costing the most are garage door(~$800k + painting), micowave/vent(~$400k), Painting/holes patching ~$3k. Carpet was changed last year and it's still good. So the move out cost doesn't include flooring.
We put laminate flooring in, thinking it's indestructible. But it has been badly scratched and I have been looking at everything to try to patch it. I've tried pencil, wood stain, marker, etc....
How long does your newly rehab usually last? 5-7 years?
@Ralph R. Your story sounds like one of those shows in the Discovery Channel about final frontier ;) In the Bay Area, we call 50 degree freezing...haha! That's why we have to pay $1M+ for housing. People are saying that it is peak for the Bay Area for the past two years. I went to several open houses last month and it's stampede. People were desperately asking agents how to get their offers accepted! I just called an agent and he said that he gave out 50 disclosures. So, I really don't know how long it can go on.
Have you found any places with cash flow + appreciation??
@Jen L. Yeah but my market is different. My houses (market) just last year or so got back to pre crash prices. I bought during and after the fall. now prices are rising still but in the !00-$150K range. I don't see huge increases like you do. its more of a steady upward flow. a slower raise to be sure. I focus on trying to increase value in the duplexes by improving them and raising rents. In the SFR's I cant do much but be sure I buy right
RR
f
Jen I would guess your turn around costs are as high as they are because you did not do quarterly inspections. When you inspect your properties regularly you find, repair and bill the tenants for all damage you discover. You do not wait till the end otherwise you can not get the tenant to cover the repairs.
When you inspect and find something broken you bill the tenant, find a hole in the wall repair and bill the tenant, find a damage floor bill the tenant. At move out the only costs you should have are non damage items like carpet replacement that are normal ware and tear.
my 6-plex in San Bernardino County has cash flow and as it's MFU, the appreciation is forced by the rent increases (ie not valued by Comps). my tenant of 8yrs left a mess but the unit needed some upgrades anyway, so it's not just a move-out cost. It took about 4.5k to make it move-in ready again, but that occurred in less that 30 days -- that's $46.87/mo against his rents over the the 8yrs. The other 5 units just went on collecting rents. This is a major difference to SFRs.
@Thomas S. Thomas, yes, you're right. I didn't do quarterly inspections, I did annual inspection and I truly didn't think things were so bad. I should start the quarterly inspections. What's your tenants reaction when they receive the bills for the repair? I'm wondering what's the best way to not cause any tensions.
Originally posted by @Jen L.:
@Jeff B. It's my dream/goal to own a MF in the bay area. It is just costing too much for now. How did you buy yours? I think the San Bernadino market is pretty hot too.
Bought with a 1031 SFR in Cupertino with huge appreciation. Yes, San Bernardio is a warehousing and storage center, similar to Las Vegas. Amazon is opening a fulfillment center in Redlands now. Cost of living there is MUCH better than the bay area as long as you can avoid commuting!
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Hi Jen,
As you have found out, cash flow pays the bills while appreciation makes you rich. To be honest, this real estate game is all smoke and mirrors. The more I analyze, the more it makes no sense to invest in non-appreciating markets because repairs, maintenance and cap-ex will catch up and wipe out your cash flow.
Forced appreciation and growth markets are where the money is. Forced appreciation allows you to recycle your capital to build wealth while growth gives you constant rent increase and equity increase. I look at two houses I bought in 1996 and 1999 and I averaged close to $3k/mo in appreciation. The ones I bought during the financial crisis have appreciated $6k-$8k/mo. Rents of the properties in the 90's are now $1,500-$1,800/mo higher and $750-$800/mo higher for the ones bought during the crash. You see how much repairs and cap-ex we can cover based on the rent growth and appreciation?
CA is a great place to invest long-term thanks to Prop 13. While our rent growth and appreciation have been averaging about 6% annually for the last 45 years, our property taxes only go up at 2% annually.
If you look at all the posts from newbies on BP, they all want cash flow. Until they can change their mindset, they'll learn it the hard way. Built your wealth first, the cash flow will follow. Appreciation markets are what offer us this opportunity.
Don't buy into the sales pitch "Live where you want to live; invest where the numbers make sense." Everything in life has a price. Something is expensive for a reason so is something cheap.
Good Investing!
- Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes9y
I don't invest out of state, but I am a pure cash flow investor. I reached financial freedom at 32, which was less than 7 years from my first investment property. No leg up, no big cash reserves, no family money. I don't understand the hate on cash flow investment strategy in this thread.
- Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes9y
Let me add: if CapEx expenses make you not cash flow over time then you didn't correct math in analyzing your cash flow property. I replace an HVAC every other month, a couple roofs a year, lots of flooring, etc and still cash flow to be financially free. Cash flow investments can work fantastically, if you correctly plan for everything.
@Account Closed Hi Minh, you really need to do a podcast for us!! Most of the podcast I heard are 1) not for CA and 2) only focus on cash flow. We need someone telling us like it is, without all the smoke!!!
I wish I could buy a house in 1996 and I would be set! The property with the $8k reno cost was purchased in 2007. Now, it is worth almost 80% more. I never would have thought that! I grumble a lot about the $8k but it is ultimately a small $ when compared with the appreciation. CA real estate really is the best....If you have the $$ to buy.
@Austin Fruechting The SF Bay Area market is just totally different than Kansas. I wish I could be financially free at 32!! Congratulations!!
In here, the big $ is when you hold for a long time for rent increase and appreciation. It is extremely hard to do cash flow, unless you are @Account Closed!
- Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes9yJen L. - absolutely. CA is an appreciation play. Nothing wrong with that investment strategy. I was just trying to address a few posts trying to say cashflow investing is a bad strategy. They both work, and are very different. It all depends on ones individual goals.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.