How to assess my options when 20K+ in the hole

Question

Hi all,I bought a 3b1ba home in south Chicago about 2 years ago on a turnkey website. The numbers made sense at the time from what I could tell.Fast-forward 2 years and I've paid about 18K in repairs, which seems at least largely related to tenants trashing the place. I have not been paid rent in about a year and just had to give the tenant 1.5K in cash to get them out. Now being asked to pony up another 4-8K to repair and get this back on the market. I'm so tired of pouring money into this house and wondering if there is a likely end in sight. If you were in my shoes what options would you consider? Change property manager? Sell it and cut losses? Thanks much

Kevin Sobilo · Answer

@Lewis Kerwin, it doesn't sound like you are taking a lot of responsibility here for things going well. You have a quote for $4-8k to get the place rent ready again and you don't even sound sure what its about. That is also a WIDE estimate. If you are turning over total control to a property manager, you need to MANAGE THE MANAGER! You need to vet them carefully, understand how they operate, and in many cases stay on top of them especially when things aren't going well. You need to be your own advocate. If you are lucky enough to get a great PM, this might involve less effort, but that doesn't sound like the case. I would tell you to get a new PM, BUT if you use the same approach you might very well have a similar experience with a new PM its hard to say. Think of YOURSELF as the PM but that you are hiring someone onsite to do the nuts and bolts onsite work! IF AND ONLY IF that PM shows they are REALLY on top of things then loosen the reins and let them operate without so many questions and oversight.

John Clark · Answer

Looks like you were sold a turn key house, but you had bad tenants. Fire the property manager, set STRICT AND HIGH tenant screening criteria, and find a property manager who obeys orders and follows directions.Also, long term, get out of Chicago. Illinois an Chicago aren't worth it in general, and are pure hell for out-of-state investors.

Crystal Smith · Answer

I recommend the following:1. Get recommendations for other property management companies. Interview them and fire the one you are using2. Regarding the estimate you're getting for repairs. You can probably get it done for less. While I realize you purchased this as a turnkey, passive income property, you're going to have to get involved. I recommend you establish relationships with a couple of local contractors and/or handymen so you can get an independent assessment of the cost. You can get recommendations through forums like this one.3. Once the property is ready consider using more than one strategy to move the property. You can sell it outright, and you can also offer it up as rent to own/lease with the option to own. Under the 2nd strategy, you'd be looking for a tenant buyer that has cash for a downpayment and can qualify to purchase in a short period of time. We usually do 18 months or less. For this strategy to work you'll need a 3rd party (mortgage broker) to vet the applicants to determine if they have enough cash & a credit counselor to make sure they are doing what's required to qualify for a loan. We find that tenant-buyers do not tear up the property because they have already put up a lot of cash. And while you will not be able to recover all your losses, you may be able to recover more than you would from just doing a straight sale

Ray Hage · Answer

First, I would avoid Chicago itself like the plague especially as an OOS investor. It sounds like your PM did terribly in terms of managing the tenant and the place itself. Personally, I would get rid of this property and aim for a property in a more landlord friendly city/state (generally speaking, this will be politically redder cities and states). So talking strategy....you'll want to fix up the place (spend that 4-8k) and put it on the market vacant.

Jonathan Klemm · Answer

Hey @Lewis Kerwin - Sorry to hear about your situation. Don't let this experience push you away from real estate, we have all been there. I'd recommend talking with @Eudith Vacio...she knows the south Chicago market quite well. She can probably help you rent it or sell...most importantly she will give you honest advice on the best next steps.

Theresa Harris · Answer

If you had a PM that allowed a tenant to stay there who was trashing the place and not paying rent for over a year, I'd fire that PM and get another one. I would also visit the property and do what you can yourself for repairs, cleaning, etc.You could have had a bad PM, a bad tenant or both. also what type of area is it in as that will determine what type of tenant you get. If it is in a bad area, then I'd sell it and buy in a better area where you will get better tenants.

John Warren · Answer

@Lewis Kerwin I am sorry you have had such a rough time. My guess is you are in a rougher neighborhood. A lot of the south suburban and south side homes look great on paper, but are tough to make work in real life. A unit turn for a house always costs 4-8k, so if you have turnover then you will make zero money. You definitely have two issues going on here though. You have a bad PM most likely and you have a house in a tougher area. Even being a local, I would need to know more about the house and the area to help. For instance, my advice would vary greatly depending on if you have a solid brick bungalow in an area that might gentrify versus a frame home in a never-ending D+ area. Appreciation can save your bacon in these tough areas depending on the home. I have sold some homes for eye popping numbers to owner occupants, so I would continue to collect information here before you make a decision.

Chris Seveney · Answer

@Lewis KerwinSell it and cut your losses is what I would do.

Paul De Luca · Answer

Probably best to cut your losses and move on at this point. What are the repairs that need to be made, how much do you think it's worth, and what do you owe on the property?

Caroline Gerardo · Answer

Whoever sold you this dog actually reanimated a dead dog.Sell for a loss and call it college expenses.