Gut or sell my SFR that has constant maintenance issues?

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Gut or sell my SFR that has constant maintenance issues?

Jan Kutrzeba
Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes

Hi BP,

I need your advice on whether I should get rid of my problematic out of state SFR rental property or take a loan to gut it.

It's a 120-year old 4br 1ba SFR in a not-so-good part of Allentown, PA - very typical to the area. We bought it in May 2019 for $66k. The tenant pays $900/month and all utilities, my PITI is $517/month, I pay 10% to the management company to collect rent, do quarterly inspections, repairs, and evictions if need be. A generous cash flow of $290/month IF it weren't for something constantly breaking.

We bought it in May 2019 with bad tenants. The eviction took (all in all) about two months + a 3wk bed bug treatment $900). I had to put around $5k in junk removal and repairs (wall, gutters, electrical, stove...), while also putting a lot of sweat into it myself (cleaning, painting, caulking, minor repairs I knew how to do). We got a good tenant by mid-October. My cash flow has been murdered by repairs that keep adding up. The latest quarterly inspection showed

- sewage leak in basement

- door and window issues

- toilet sinking into the floor

- weak spot in the roof (leakage)

Estimated repairs possibly in the thousands (waiting for a quote). The problems seem never to stop. I’m already losing my sleep over this house. My wife doesn’t even want to hear about it anymore.

Now, what would you do? In my mind, my options are:

- sell asap and let someone else deal with the issues. Realtor says I’d get max $75k.

- take a loan, put some $30k into renovations and charge higher rent (max $1200 in this market)

- fix for some $30k and flip, which (per my local realtor) is not an option in this market

It's important to note that SFR is not a strategy I want to stick with. Owning +100 SFRs sounds like a nightmare to me. I want to move into multifamily investing. So from the strategy POV there's no point in me keeping this property. I never expected to make money off of it (certainly not get rich, obviously), but I also don't want to lose any. The main point for me with buying this property was to take the first step into REI, to take action, to pull the trigger, and to learn - the whole journey with this house has been a phenomenal learning experience (albeit painful). I guess the main reasons I'd want to keep the house are 1) ego - to be able to say "I own a rental property" and 2) hope for things to magically turn around and one day sell for profit (gambling...)

What would you do in my shoes?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y

Sell it.  Why are you keeping it with all of the problems...and don't say "it's the cash flow"...because cash flow can be found in another property.

Never fall in love, get emotionally attached, or in any other way connected to any property.  The property is nothing more than the vehicle your money rides through to get your profits or cash flow.  If your car broke down like this, you'd replace that in a second.

Dump the problem and put the cash you get out in a different property....and there is no "magic" in REI. REI is a numbers game, with $$$ in front, not street names behind. Follow the money, not your ego (your words). Get out of this property (notice I didn't say "deal") faster than ASAP. The longer you stay in it, the more money you lose. The more money you lose, the longer it takes you to get to a profit because it means more losses you have to recover first...and, you have less (and less, and less...) money to get there.

Ego and Rationalization are the two most expensive words in the REI's dictionary...so NEVER use them. You can't afford them.

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  • Joe Colasuonno
    Rental Property Investor · Allentown, PA · Member since 2012 · 92 posts · 80 votes
    6y

    Was thinking about this over the weekend.  Your property likely had many years of deferred maintenance.  You need to get caught up on that entirely and it may take some time.  Once you do, you'll be in a good position with the property, and you'll be happy you kept it.  You're always going to have issues when renting property out, the longer you go taking care of problems, the less problems you'll have.  I say you stick it out.

    2Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @JJ Chojnowski

    1. We started advertising at $1100, had a lot of ppl come see it but only a few (all terrible) applications. A month went by and I lowered to 1050, then 1000, then 950 and finally at 900 we got good apps and found our current tenant who so far has paid on time and has no u reasonable demands. The annual rent escalation is 5%.

    2. I’m afraid they never will. I’ve learned that the seller I bought it from is notorious for not taking care of his properties.

    3. Yeah nobody knows. Only time can tell.

    4. They let me know good time in advance that they’ll start charging 10% as of 2020 because a lot of their landlord clients carried a high balance.

    Thanks JJ!

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Syed H.

    Thanks Syed it was great talking to you. Can you recommend a good plumber and a carpenter or all around handyman?

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Terry Z.

    Thanks Terry yes definitely something to think about. Being a newbie investor I’ve had to make my mistakes though and happy I started small.

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Eric Mcginn

    Thanks Eric!

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Caleb Heimsoth

    Thanks Caleb

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Dennis M.

    Hey Dennis I'd still only buy OOS in my position. In my market (Brooklyn NY) gut reno SFH in the worst neighborhoods start at $700k. Only flipping or condo conversions make sense. That's a risky game for a newbie.

    0Reply
  • Terry Z.
    Rental Property Investor · US · Member since 2015 · 22 posts · 3 votes
    6y

    @John Kutrzeba

    I totally agree with you. Yea, just have to learn through mistakes. I had to sell my first rental because I did not do numbers, and although it was postive cash flow, I could find better margin, so I went ahead and sold it.

    1Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Emanuel Ohunwu

    Thanks Emanuel. I def need to fix it first

    Don’t wanna just dump a problem to someone else.

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Mary Mitchell

    Thanks Mary

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Gordon Starr

    Thanks Gordon I’m out of state with no time on my hands. Makes no sense in my position.

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Joe Colasuonno

    Thanks Joe! Can you recommend a plumber, carpenter, and/or a handyman in Atown or nearby?

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Terry Z.

    👍 Also there’s a bunch of stuff no one tells you when analyzing properties. In Allentown eg an annual biz license and a rental license were items I hadn’t accounted for. Minor amounts but it all adds up and changes the equation. And yes no amount of reading and podcasts have taught me more, better and faster than buying and owning a rental.

    0Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    6y

    @John Kutrzeba

    Did all those issues pop up recently, or are they the result of deferred maintenance? When you bought the place, was it inspected, and were any of these noted?

    1Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Kris L.

    Recent issues Kris

    0Reply
  • Mike Thoeresz
    Investor · Fresno, CA · Member since 2017 · 27 posts · 12 votes
    6y

    @John Kutrzeba

    I’ve got a similar situation in Muncie, IN. 4/2 in a half decent area. $105k purchase in 2017; and $1100/month in rent. This house always has problems. I have a slab leak now that will cost me a fortune.

    I’m looking into roofstock or homeunion to sell it. 2.5% in fee’s.

    I just moved to a low cost of living location and bought a 4-plex. I want to buy more. I’m going to try and sell my out of state property while the economy is still crushing. Good luck on your decision!

    1Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Mike Thoeresz

    Thanks for sharing. Sorry to hear - that sucks. Rootstock is an interesting proposition for passive investing. Congrats on the 4-plex!

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    Thank you everyone for all the shares, advice, and your time. I had the pleasure of speaking on the phone with Syed
    and meeting in person with JJ. The community here on BP is truly remarkable. 

    A quick update... I drove down to Allentown just to show my face and assess the situation (although I have no expertise in plumbing, carpentry, or similar) in person. It was a good call. Turns out it wasn't that bad. The tenant had clogged the old cast iron sewage pipes with baby wipes and other garbage (e.g. pens. Pens!!). The sewage water had then started accumulating in a below-ground hallway by the finished basement. Around 3 inches of it. 

    The roofer patched what needed to get patched for $300. I got three completely different quotes on snaking the pipes and cleaning the sewage "water". Zoom Drain quoted me $699 for the snaking alone. Clean up several hundred bucks on top of that. 911 Restoration quoted $1,500 to snake and clean up. 

    I gave the job to Affordable Plumbing that did everything for $375. That's a discounted price for landlords who are under Empire Property Management (my mgmgnt company). Regulars pay $475. 

    The price difference in these quotes makes no sense to me. I was upfront about getting three different quotes so all three were incentivized to give me their best offer. I opted out of the camera. I feel like they either do the job right or not and me looking at the pipe from the inside not understanding anything is a waste of $.

    Given that the tenants clogged it, we're billing it back to them on top of their next four months rent.

    As to selling or not selling, I'm leaning towards selling before the summer. 
     

    0Reply
  • Gordon Starr
    Rental Property Investor · Dayton, OH · Member since 2015 · 312 posts · 273 votes
    6y

    Good job! I used to ask my Detroit tenants to keep a list of issues they found. When I did come up from dayton, I would knock them all out at once.

    0Reply
  • William P.
    Real Estate Investor · CA · Member since 2011 · 47 posts · 14 votes
    6y

    John - you need to sell the house ASAP, as you can't afford this type of investment, financially or emotionally

    From your posts:

    you have a kid coming

    your wife is tired of hearing about the house, likely causing stress in relationship

    you know you should sell house, but want to keep out of ego/pride

    you have no life insurance

    you were "desperate" for a tenant

    you made less this year as a RE agent than last

    My advice - dump the house, get some life insurance, spend all the time you have been spending on this "investment" working on building your RE business in Brooklyn.

    1Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y
    Originally posted by @William P.:

    John - you need to sell the house ASAP, as you can't afford this type of investment, financially or emotionally

    From your posts:

    you have a kid coming

    your wife is tired of hearing about the house, likely causing stress in relationship

    you know you should sell house, but want to keep out of ego/pride

    you have no life insurance

    you were "desperate" for a tenant

    you made less this year as a RE agent than last

    My advice - dump the house, get some life insurance, spend all the time you have been spending on this "investment" working on building your RE business in Brooklyn.

    Correct on all points. Too many REI get attached to their properties thinking they are the "assets"...and they are not. The properties are nothing more than the place your "assets" reside...temporarily. Your assets are, and always will be, your cash, that is "temporarily" located in the properties. If they retire there, you lose. Your "assets" are more valuable by far, when they are on the move. Thus, the "temporary" status your "assets" must live by.

    1Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @William P.

    Thanks, William! Our boy is now almost 5 months and life insurance in underwriting so catching up on life but yes I can’t afford to keep the house atm and it’s not making money so gotta make the move. They say you can invest with no money but it’s definitely risky. We were extremely lucky with the first tenants we evicted not causing any major damage. That could’ve really dragged us down.

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Joe Villeneuve

    Thanks, Joe. Nobody wants to admit “defeat”. Just gotta get up and try again. I’m amazed at ppl who were able to invest with no money and with low income. Gonna regroup and check back in a year.

    0Reply
  • Jan Kutrzeba
    OP
    Rental Property Investor · Austin, TX · Member since 2018 · 98 posts · 39 votes
    6y

    @Gordon Starr

    My tenants didn’t even know about the sewage problem! They keep also saying how the house is cold but then I drive down there and see they keep the windows open when it’s below 40 outside.

    1Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y
    Originally posted by @Jan Kutrzeba:

    @Joe Villeneuve

    Thanks, Joe. Nobody wants to admit “defeat”. Just gotta get up and try again. I’m amazed at ppl who were able to invest with no money and with low income. Gonna regroup and check back in a year.

     What defeat are you talking about?  Defeat is final.  Have you given up?  If you sold out, would you be out of money?  If you sold out, would you stop losing more money?

    0Reply
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