The maintenance cost is so unexpectedly high.
What can I do?
Need more information. Otherwise, all things being equal, there’s not much you can do, besides donate your time and money to the project, until the rents begin to exceed 1% of the value of the unit/project.
Best product best price. When you buy the house fix everything. Pay for that with the financing so it is now part of the basis of the purchase. New stuff don’t break if it does it’s under warranty or the tenant broke it. If the tenant breaks it they pay for it. The lease is written that way.
You will save hundreds if you do the small maintenance issues yourself. Calling a plumber each time the sink backs up will eat up your profit in no time.
Also, create a maintenance schedule. Regular professional maintenance (i.e. get your furnace professionally inspected and repaired) can extend the life of your equipment. Count the costs between maintenance vs. replacement. If you are having problems with one or two faucets in your building, consider replacing them all (yes the upfront cost is high but there will not be any more maintenance issues).
I hate to disagree, but unless we’re in a hardship situation, and/or we can’t figure out how to make more money than a plumber in this business, we should not be putting the plumbers, etc. out of business, simply because the cash outlay is cheaper. What’s our time worth? If it’s not worth squat, then we go ahead and fix crap ourselves.
Otherwise, we need to delegate routine matters to someone else, and learn to leverage our time.
Of course, not everyone is smart enough to make real estate more profitable than being their own plumber, but that doesn’t change the notion that time spent fixing things, is no leverage whatsoever.
*Replacing ALL the faucets in a building, just because one, or two, faucet(s) needed repairs/replacing, does not mean we’re not doing repairs. It means we’re doing ‘unnecessary repairs,’ to all the faucets that were still working. We don’t fix what isn’t broken. Few of us can afford ‘ego trips’ like that, and stay in the business.
While I agree with you jay, his point is that his opportunity cost is zero if the alternative is sitting on your butt eating Cheetos. You both are. Or react, but his advice only works for an occasional landlord.
Hmmmm funny that you initially said the same thing I did except I elaborated it a little more. “Donating your time and money to the project” means doing the work yourself when you are not at your other job earning money. Instead of coming home from work and calling the plumber to unclog the tenant’s sink, why not go over there yourself and fix it. It will save you a $50 service call.
Sure, if you have 25+ units, that is probably not practical. But it sounds like the original question was coming from someone that is just starting out.
My time isn’t worth that much at this point. I would rather fix it myself to save money and for the knowledge. I don’t know HOW to fix most of this stuff at this point, but that is changing. I joined an Internet forum where I post pictures of maintenance issues and people tell me how to fix it.
Who would have thought that building a masonry wall is actually harder than being a lawyer?
I’m not gonna die on any hills here, because I don’t care enough, and in the end, people do their own things anyway, because thinking is too hard for them.
If the investor bought wrong, and/or can’t figure out how to put enough money away, to both budget and pay for routine repairs, then he’ll have to donate his own time and money to the project.
I mean if you’re doing your own repairs, you’re likely unable to afford professional management, and so we’ve answered the question about the quality of the investment.
Otherwise, there should be plenty of appreciation, inflation, cash-flow, and reserves to ultimately cover routine repairs. If not, then perhaps we are bad investors.
Honestly, if the deal’s so bad, that it can’t pay for routine repairs, without more of our time and money invested, then either we didn’t already invest enough at the get-go, or this is just a bad, bad, terrible, upside down deal in the first place. Just saying.
Which brings me back to saying that single family houses are rarely good cash-flow investments, because they aren’t typically purchased at a price that leaves room for 3rd party management, much less 3rd party maintenance. I realize this. And I’m not arguing that a SFH investor, gambling on an appreciation play, simply ignore reality, and make the investment worse, by incurring retail repair bills on it.
You do what you have to do.
I no longer have any ambitions of owning single family homes. I will stick to apartment complexes.
Appreciation, inflation, cash flow, and reserves…
Appreciation doesn’t help me unless I sell the place, in which case I would have nothing to repair.
Inflation makes money worth less, not more and if anything would lessen the positive impact of rent raises.
Cash flow is my only source of income from these properties.
Reserves come from cash flow and even if I used them, I would have to fill them back up.
What type of properties do you (or anyone) own that you can hire professional management and licensed professionals to do all repairs?
“Who does the repairs?” is the issue.
If you don’t own/control enough apartments, to hire an onsite maintenance man, you pay retail.
Otherwise, I once used to use my onsite (apartment) maintenance man (Jesús, was his name) to fix my rental houses. Yes, Jesús was my carpenter …and electrician …and gopher. I called him my miracle worker. j/k
However, another way is to hire retirees to perform various maintenance tasks. They often work slower, but take directions well, are patient, and available.
Many times, you have to explain exactly what you want, and supply the materials. So, yes you’re doing a lot of support, but it’s still usually cheaper than hiring fully insured, skilled, for profit, vendors.
For unskilled labor, there’s always day laborers that’ll work for about $12/hour cash; sitting in front of Home Depot, etc.
If you are seriously after cash flow, find larger versions of RV parks that you’re already invested in. I mean at 2.95 rent/price ratio, it shouldn’t take many of those to pretty much set yourself up.
Otherwise, focus on, older, low-end, value-added, multifamily units. By value-added, I’m talking mismanaged, under-performing, fugly units, that you can spot immediately by the exterior appearance; to buy, stabilize, raise the rents, and create even more cash-cow. These don’t drop off trees, but once you own, them they’re yours to milk forever.
Meantime, bad management isn’t hard to spot. The issue is, how far ‘downtown’ must you go to find these deals.
FWIW
How do large companies like Holiday Inn or corporations that own large (100+ unit) apartment complexes handle maintenance? Do they have someone living there? Does the Holiday Inn pay retail every time?
Motels and hotels hire maintenance all different ways, depending on the size. A small operation will depend on an onsite couple to manage and maintain the operation. A larger one might have an hourly, off-site employee.
You don’t care what hotels and motels do. You only care what apartments do. Two different animals.
I would not be opposed to venturing into hotels as long as it’s not a mom and pop situation. I assume that the same rules apply… seek an investment that you can add value to immediately.
Hi,
Now your biggest problem is maintenance so rather than being reactive become pro-active, start rebuilding the park from profits from it's roots forward, that may mean replacing sewer and storm drain lines, replacing water and electric supply, installing new meters, running new phone and cable lines, and installing cat 5 cable for internet just in case, then repairing and resurfacing your streets, providing lighting, and then painting exteriors and remodeling individual trailers.
This would allow you to raise rents which in turn would allow you to cover costs of the remodel and increase the property value!
Create the Beverly Hills of trailer parks, raise rents appropriately to reposition the property say over 2 years and start screening and renting to a more upscale client, think better credit, better income and better jobs.
GR
Will do.
Thanks.