All my Cashflow to Repairs & Maintenance this year!

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All my Cashflow to Repairs & Maintenance this year!

PJ Kolnik
Chicago, IL · Member since 2017 · 81 posts · 87 votes

I knew that there would be good years and bad years and maybe a bit of something in between. I own a 3 unit in Chicago and cashflow about 350/month/unit after PITI. I figured that would keep me pretty well set.

When I bought the place I knew there would be stuff to fix, I just didn't think it would happen all in one year.

- Replace all 3 water heaters - $1500 for parts, ~$1000 for labor (had the plumber move some piping too to allow for future 3rd bedroom addition in the basement)

- Top unit, fridge went out! - $1750  - I know you're probably thinking - dang that's a lot for a fridge! Well I tried to go cheap and buy something off of craigslist only to get it to the front door and realize there was no way it was going to fit even with the doors off! These older buildings in Chicago have narrow doors and narrow staircases. I had to eventually pay the guy 70 bucks just to take the fridge back and then go to Lowe's buy a brand new, counter depth (measured everything to find this one that would fit) french door fridge... with delivery thankfully.

- Roof and Brick Repair - $4500 - my parapet wall was old and definitely needed to be fixed, I was just kind of living on a prayer until it really needed it. Well the roof sprung a small leak at the end of this summer and you don't want to mess with water so I went ahead and fixed both the roof and decided that while they were up there it was time to rebuild parts of the parapet wall.

- A few other small handyman calls - $500

I try to build good contractor relationships and make sure that we have a good dialogue throughout projects, but those costs still add up and I just don't have time to do all of these repairs myself. Anyone else have a lot go out on repairs this year? Any good strategies to deal with Capital expenses?

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Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
6y

Here’s the thing the get rich quick gurus leave out ..The first year is always going to suck Big time with repairs, insane inherited  tenants deferred  maintenance and just plain getting the property stabilized . If you go into each property accepting your not going to make a penny that first year ,you’ll rest easier knowing your breakthrough is coming soon  . Save for it ,Plan for it ,and accept it ! 

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    Sometimes it just happens this way, but that is what reserves are for, as you scale though the probability of everything going wrong at every unit goes down a lot and you average out across units so it is more steady year to year.

    8Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    6y

    I hear the first year can be the worst in terms of repairs.  Hopefully you won't have much for a few years to help build reserves back.

    2Reply
  • Nik Corbaxhi
    Rental Property Investor · Stratford, CT · Member since 2019 · 154 posts · 115 votes
    6y

    @PJ Kolnik, it does happen sometimes, and it is unfortunate that they all come at the same time. However, look at it this way, your water heaters most likely dont need replacing between 7-10 years, so that is said and done. 

    Refrigerator, while you cannot predict, the fact that you bought it new, you would expect it to last a while. 

    The roofing issue seems like something that needed to be done, it was just put on the back burner. 

    My rule of thumb is to always account for 3-6 months of PITI in a savings account as an emergency fund. (this is for SFH).

    No regrets and move forward, hopefully this was the end of it! 

    4Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    Last year I had a feral tenant blow up. She moved. out one weekend; damaged doors, windows, big holes in drywall. Son broke in after set off fireworks in unit, drank with friends, got arrested. Cost about 20k in damages. I fired the PM. It happens!

    10Reply
  • PJ Kolnik
    OP
    Chicago, IL · Member since 2017 · 81 posts · 87 votes
    6y

    @Aaron K. Agreed, I’m glad I was keeping reserves from last year and I’ll definitely be keeping about 10-15k in that account for vacancy / repairs from now on. Thankfully I didn’t suffer from the worst expense this year - vacancy.

    2Reply
  • Eudith VacioPro Member
    Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
    6y

    Hi @PJ Kolnik. Hopefully these repairs last you awhile. You can also save on repairs through buying your own material. You could have most definitely bought a cheaper fridge, just be sure next time you take  measurements to ensure that what you get will fit. It's a bit more work to do the research on your own but you have to weigh the time v cost. Keep you capital reserves in a high-interest bearing savings account, too. 

    0Reply
  • PJ Kolnik
    OP
    Chicago, IL · Member since 2017 · 81 posts · 87 votes
    6y

    @Bjorn Ahlblad that’s insane. Nothing crazier than real life. Kudos on your resiliency.

    0Reply
  • Brent Paul
    Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
    6y

    Yeah it sucks but it's a part of home ownership.  My first 6 months I replaced the garage springs, water softener, septic pump, hood vent, and tub cartridge.  Then my basement flooded with sewage water.  Not a good year. lol

    3Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    Here’s the thing the get rich quick gurus leave out ..The first year is always going to suck Big time with repairs, insane inherited  tenants deferred  maintenance and just plain getting the property stabilized . If you go into each property accepting your not going to make a penny that first year ,you’ll rest easier knowing your breakthrough is coming soon  . Save for it ,Plan for it ,and accept it ! 

    24Reply
  • Account Closed
    Specialist · San Antonio, TX · Member since 2012 · 865 posts · 351 votes
    6y

    You invested into the property Mr. Investor:)

    5Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    I had to Google what a "parapet wall" was. 

    We don't have parapet walls in my neighborhood although they look really nice. 

    3Reply
  • PJ Kolnik
    OP
    Chicago, IL · Member since 2017 · 81 posts · 87 votes
    6y

    @Account Closed I guess I should just be happy my first property has tempered my optimism regarding low capex spending when I write up my deal sheets.

    3Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    6y

    There are no unexpected expenses.  Only unexpected timing.  

    23Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    @PJ Kolnik

    On the bright side.....tenants pay down your mortgage, you get appreciation, and tax write offs!

    Hopefully you crush it for a while now.

    8Reply
  • Account Closed
    Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @PJ Kolnik

    Man that sucks, I'm sorry to hear that. Murphy's Law at it's finest! Just my observation, but your cash flow is not $350/mo. I know hindsight is 20/20 but you really should have accounted for a certain amount of $ each mo. to go towards repairs, capex, vacancies, etc. BEFORE figuring your cashflow. Only calculating it as Rent - PITI could get you in trouble long-term if you're not careful.

    Anyway, just something to think about on your next deal. Hopefully you are atleast getting some great appreciation. Best of luck!

    11Reply
  • DeeDee Cherubini
    Real Estate Broker · Salem, OR · Member since 2019 · 5 posts · 1 vote
    6y

    Might be worth getting a home warranty on the property if it seems like your other systems/appliances are getting to the end of their shelf life. 

    1Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Account Closed:

    @PJ Kolnik

    Man that sucks, I'm sorry to hear that. Murphy's Law at it's finest! Just my observation, but your cash flow is not $350/mo. I know hindsight is 20/20 but you really should have accounted for a certain amount of $ each mo. to go towards repairs, capex, vacancies, etc. BEFORE figuring your cashflow. Only calculating it as Rent - PITI could get you in trouble long-term if you're not careful.

    Anyway, just something to think about on your next deal. Hopefully you are atleast getting some great appreciation. Best of luck!

     I agree.

    Cashflow is NOT = Rent - PITI

    Cashflow = Rent - Operating expenses - Mortgage payment (Principal & Interest)

    Some of these unexpected expenses can be avoided by addressing the deferred maintenance upfront - when you buy the property. We calculate that upfront - for example, if the kitchen appliances are old, even if they're working, we allocate a budget for it as part of our renovation budget. Old windows, old roof, etc - we budget for it even before we close on the deal. So we have enough Capital reserves - and in addition to this, we reserve 3-5% of the gross rents for on-going maintenance.

    14Reply
  • Brian Prudden
    Buddlake, NJ · Member since 2017 · 76 posts · 21 votes
    6y

    @PJ Kolnik yup same here all kind of repairs on my first rental. Hoping next year will be better . At least we jumped in the game . Good luck next year

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    6y

    IMO, we have to have cash flow monsters or properties that appreciate well to make a decent return in real estate (and/or force appreciation).  1%'ers with lean cash flow and limited market or forced appreciation require precise execution and, even then, it may not make money.  Not suggesting that your property fits this description...just generalizing.

    7Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    You are from my market.  Your post is truly interesting, because most investors don't calculate the capital improvements that may have to go into their buildings.  Especially if you buy older rental properties, this will happen.  Putting a new roof on a single family rental house more than wipes out one year of cash flow.

    1Reply
  • Cara Kennedy
    Rental Property Investor · Member since 2019 · 189 posts · 62 votes
    6y

    @PJ Kolnik - hey PJ. I agree with the person who said have roughly 3-6 months of PITI payments held back, and then my approach is out of the cash per door, I hold about 40% back in a bank account I don't touch. Then over time my buffer will build up and unless I'm well diversified over a handful of properties, I don't touch that account.

    The rough split on the 40% (plus or minus based on recency of rehab) is 10% cap ex, 10 % property management (always use this if you plan to scale), 10 % vacancy, and 10% miscellaneous and legal. More if the property is in rough shape.

    4Reply
  • Josh Johnston
    Member since 2019 · 51 posts · 36 votes
    6y

    I appreciate knowing that the first year is often the most chaotic! That's going to help keep my moral up after my first deal. 

    1Reply
  • Wil Pace
    Real Estate Broker · Member since 2018 · 14 posts · 3 votes
    6y

    I got crushed this year as well - roof replacement, new windows in several units, and a $5,500 bill from the city to pay for mandated sidewalk repairs in front of my building!  Hoping 2020 is a bit kinder...

    3Reply
  • Jason Turgeon
    Realtor · Boston, MA · Member since 2019 · 244 posts · 275 votes
    6y

    We bought a 2-unit house with a 203k rehab loan in 2008 with 3% down. We were young and broke. Had a $35k rehab budget, went over it. Moved in, got a tenant, thought we were done with money out and could relax and have him pay half the mortgage.

    Day 1 of heating season the shared furnace quit on us. Young and desperate and inexperienced, we paid $10k for a new furnace (about 2x what it should have cost). With our rehab budget exhausted and no money in the bank, I put that sucker on a charge card and made payments for years, shuffling it from promo balance to promo balance.

    A couple of months later, the tenant was complaining nonstop about being too cold. Windows were functional but 25 years old and pretty drafty and not opening and closing well. Young and inexperienced and anxious to please the tenant, we put in new windows in his unit and ours. But we got overwhelmed with choices and ended up with Renewal by Anderson at $1000 per opening (aobut 3x what we should have paid). Had to take out a loan on those windows that I paid monthly for years. 

    A month or two more go by, and our tenant has stopped paying rent and is badmouthing us to all the neighbors. I found out later he'd been kicked out of half the houses in the neighborhood. 5 trips to housing court later I finally got rid of him. Housing court arbitrator convinced us to agree to taking half the money he owed us, $50 a month, for 30 months. He had the gall to move right next door. I had to see him every day. You better believe he only made a few of those $50 payments before he stopped paying. I chased him for years but he still owes me money. I only gave up when he finally moved out of the neighborhood.

    This business is HARD, especially when you are first getting started. And it can stay that way.

    But on the bright side, we replaced him with a great tenant who stayed for 10 years with no issues. We hit the market well and were able to cash out refinance to buy a second, nicer property that we now live in. Then we waited and sold that first property earlier this year. We have turned that cruddy little 2-family with the blown furnace and the drafty windows and the nightmare tenant into 24 units of professionally managed housing in Texas. And those lessons I learned back then are serving me well now.

    If you keep at it and you learn from your mistakes and you balance being a good landlord with not giving away the store, you will eventually do well in this business. It is absolutely not going to be easy.  But it is possible. Keep your chin up. 

    15Reply
  • Wesley I.
    Investor · San Diego, CA · Member since 2019 · 286 posts · 135 votes
    6y

    Tax write offs?

    0Reply
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