1st Investment, Problems a brewing

[Tom Carmody]

So, I closed on my first property in Chicago in August. It is a 2-flat remodeled in 2016. Long story short, the heat went out on the first floor last night (was about 12-15 degrees). Tenants were fine luckily but fast forward to today, a water pipe burst in the wall where the bathrooms are connected. Water shut off.

I just found out front the tenant on the top floor that this apparently happened twice last winter to the lower floor and why the last tenants moved out.

Two questions:

1. As a landlord, should I consider giving them a break on rent for days lost to this (currently 3 days)?

2. Would you dump money in to attempt to correct it permanently or cut losses and try to sell? It flows about $800/m ($400/door).

New investor here so happy to hear your thoughts. Thank you.

[Nathan Gesner]

It's very common to buy a property and then have a major, unexpected problem within the first few months. Welcome to the club!

When you say it "flows" $800 a month are you talking about cash left over after paying mortgage, taxes, insurance, and setting aside a percentage for repairs, capex, vacancy, etc? If so, I would highly recommend you keep it. Anything over $200 per unit is a pretty good return.

Selling it would probably be a loss. I would keep it and let the cash flow pay for the repair. Make sure it's fixed permanently so you never have this issue again.

As for reimbursing the tenants, that's a personal call. You're not at fault and your mortgage lender isn't going to offer you a discount so there's no obligation to discount the tenant. At the same time, you can have a heart.