All Forum Posts by: Nik Frid

I think it's a good idea to budget for an additional 10% of expenses on top of your initial budget to account for additional unknowns during a rehab.That way it's baked into your numbers. If you dont need to use the extra cash, it's an added bonus/savings once the project is complete.

Nik,

I'm not sure I understand the question, but if I'm on the right track I would say that unknown issues. I have done a lot of rehabs over the years and sometimes in the middle of a rehab we find something that needs fixed that we didn't know about. I know there are a lot of people, investors included, that will find something wrong with a property but cover it up instead of fix it. I don't operate that way. 

Over the years we have seen some crazy things, like plumbing pipes sealed with glue and duct tape to stop a water leak. A lot of times we find surprises when we are tearing out walls to change a properties layout. I always try to build in enough profit so that when we find unexpected issues we can make the needed repairs and still be profitable. I say unexpected, but I normally expect that we will find something on each house we do. 

Another example would be a sublease on a property that the title search and insurance didn't catch. I once bought a school from the county board in which there were no disclosed leases on the property only to find out later that they failed to disclose an internet company was leasing a small shed (probably 4' x 6') on the property. I bought the property on one day and sold it the next. It wasn't until the new owner observed the internet provider walking through the school property that they learned about the lease. 

The new owner called me and said they regretted having to involve me, but they had to sue me to go after the school board. As a result I paid several thousand in attorney fees to basically act as the middle man between the new owner and the school board that sold the property. My title insurance company didn't pay anything to start because they said the lease with the internet company was not listed at the court house. After it was all done my title insurance company sent me a check for my attorney fees. 

@Nik Frid Water, sewer. Some type of electrical either a landlord portion for certain central lighting or else when the account reverts back to you upon vacancy.

 Hey Nikk

Ideally as investors IMO taking out a loan to cover operating expense should be absolute worst case scenario. Ideally we set up reserves on the front end when purchasing and built out capex / reserve money into the initial cash required for the deal. 

Now, plans are great, but things don't go according to plan. I got a phone call last Friday from a maintenance guy at a property. It went like this. 'You sitting down'. me (yup). him 'You're boiler's cracked and you're going to need to replace it'. me(gulp). I bought the property 6 months ago and although it is 'stabalized' in most senses I blew through most of my reserve budget to get it there. LOng story short, the boiler is chugging away nicely right now, I didn't have to beg a bank for $50k, and I will continue to put as much money away as possible to be ready for whatever is to come, because oh man 'it' will come.

Happy investing !

I assume you’ll have a mortgage?

Lack of income from vacancy or non-paying tenants, evictions, make ready, advertising, commissions to realtors for bringing new tenants, is your “maintenance” repairs, or landscaping, snow removal, painting, etc etc. 

yes. thank you