You may recall that I recently shared an inside look and deal analysis of our latest investment property here.
I wrote that post about a week or so after we had secured tenants for both units of the duplex but before either had moved in.
Since then, some things have gone down. And I always want to be transparent about what Selenid and I do right…but also what we do wrong. The wrong stuff is where learning takes place for all of us – me and you. And we do a lot wrong.
However, I hope this also illustrates the importance of being patient and pushing through the obstacles (aided of course by your big why). In the end, these transient bumps in the road become big nothings. Even though, at the time, they can be really (really) annoying…
A recap of or latest investment property
This one was our fourth investment property, a duplex in Buffalo, NY. Again, for a full breakdown of all of the numbers for this property, check out this insider look.
But here are the highlights:
- Purchase price of $228,000
- Expected money out of pocket of $66,042 (Down payment + closing costs = $64,542, Rehab + renovations = $1500)
- Expected monthly cash flow of $1250
- And expected cash on cash return of 22.8%
And here is a key, quoted from the previously mentioned post:
“Normally, we would have moved into an inspection phase after making our offer with an inspection contingency.
But, I mentioned above that we waived our inspection contingency in the offer to make it more competitive.
And I know what you are saying! “Wait, Jordan…didn’t you just say you made a mistake by doing this with your previous property??”
The answer to that question is a resounding “yes!” But, that experience did teach us a lot of what to look for and with this property we did feel comfortable doing it again.
It is a calculated risk that we took. I’ll keep you posted on how this works out…”
Well…this is me keeping you posted on how it worked out…
Watch Jordan’s Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!
We made the same mistake in our latest investment property…
…as we had on a prior property. In fact, we made even more mistakes on that property that you can read about here.
But the mistake we also made on this latest investment property…that was the mistake of not getting an inspection.
Why did we not get an inspection…again?!
Fool me once, shame on you. Fool me twice, shame on me. So…shame on us.
We have gained a lot of experience investing in real estate. When we walk though a property now, we know a lot of things to look and look out for. So, when we walked through this property, which was recently flipped, we felt pretty comfortable with everything.
Externally, everything looked good and up to date. Faucets worked. Toilets flushed. Lights turn on. And on and on.
So we felt good going in without an inspection and budgeting out a low amount ($1,500) for rehab and renovation.
So that’s why we did it. Not justified. But that is why.
What happened after we closed
After we closed on the property, we held an open house that same day and rented both units out less than 24 hours later. That’s still a record for us.
However, each tenant did not move in for about 2 more weeks. So, for 2 weeks, all was quiet. But after the move in, it began to seem like one thing after another!
Let’s go through everything with a focus on how we dealt with the issue.
The first weekend that the lower tenant moved in, I got a call that their toilet was leaking constantly.
I told her to place a bucket there and drove over on a weekend. While there, I couldn’t figure it out so I called my plumber. He met me there and fixed it by tightening something that was loose (the extent of my understanding). I proactively had him do the same thing in the upstairs unit.
Hot water broke in showers
Both tenants texted me that they could not get hot water in the shower. But they could in their faucets. Weird. I went and found out it was because the shower handles were installed wrong and wouldn’t turn enough to get to the “hot” part of the dial.
Another call to the plumber and another fix.
Broken pipes under the sink
Ok, another day. Lower tenant texts me saying that there is water leaking under the sink. Accompanied is this picture with the pipes all falling apart. Seriously, c’mon!
The fix: Another call to the plumber and another repair with new pipes.
The mother of all ridiculousness: Part I
Ok, so I had finally gotten all of this other stuff fixed. And a few days had gone by. No issues. I thought we were in the clear. We were wrong.
Ok, so the lower tenant called me frantically. There was water pouring from the ceiling over her laundry room. I knew this was right under the bathroom upstairs. Ughhhhh…
I called the upper tenant, who only using the unit part time. He confirmed he had just taken his first shower there. I asked him not to use it for the time being.
I called the plumber again and he was there the next morning. What happened was that the previous plumber had never hooked up the shower drain to the drainage pipe. So water was just free flowing down into the lower apartment. I’m not an expert in plumbing, but this is not ideal.
The plumber fixed it.
The mother of all ridiculousness: Part II
Got this fixed and I’m feeling good again. But now the tenant calls saying the heat is not working. And it’s a cold March afternoon in Buffalo.
I go and sure enough, the furnace won’t turn on and is completely water logged from the previous drain issue.
So, I call an HVAC service I was recommended. They went out the next day and luckily could fix it by replacing the electric panel. No complete replacement needed.
The mother of all ridiculousness: Part III
New day, new call, new issue.
Now, the kitchen lights won’t work in the lower unit. I go and check the electric panel. All good there. I check the bulbs, no issue there. Seems like another issue from the water leak.
I called our contractor, he went the next day and fixed it.
The final damage
I’m happy to say that this is where the craziness ends. In all, it cost us about $3,000. Our expected cash on cash lowered by about 0.8% as a result.
So, what did we do? Did we cry? No! (That’s for any parents who read their kids Pete, The Cat books.) This was life happening for us. So we took advantage!
We spoke with our real estate agents as well as real estate lawyer. They contacted the seller. We negotiated that they pay for half of the repairs and they accepted. Technically, they didn’t owe us anything. But they are a known real estate company and we are players in the local real estate game. They worried about their reputation and we used that to partially offset these issue.
And we learned. Again.
What would we do different?
In the end, we likely still would have waived our inspection contingency. What? Are we crazy?! No, I promise we’e not. Hear me out.
This is still a great property making us a ton of money in many ways. It was also a competitive bidding process. Including an inspection contingency likely would have put us out of the running and eliminated this property from our portfolio.
But that doesn’t mean we wouldn’t get an inspection if we could do it over!
Just because you waive an inspection contingency doesn’t mean you can’t get an inspection. The inspection technically doesn’t allow you to get out of the deal. But it does shed a light on all that will need to be repaired to help with your due diligence. (And honestly, there are a million other ways to get out of a deal is the inspection comes back way worse than expected…)
So, that’s what we would have done different. And once these issues came were uncovered in the inspection, we would have just taken care of all of them up front and avoided collateral damage to the furnace and kitchen lights, saving some money and hassle.
Take away lessons from our latest investment property
- Always get an inspection
- Regardless of the inspection contingency
- Have a great team
- Our team is what made these repairs seamless and not so annoying. They were responsive and got good work done quick. This helped us with our tenants, who were rightfully a bit miffed.
- It never hurts to ask
- We mitigated our damage by negotiated for a seller’s sale credit after closing! This is not common but we went for it. And it worked out. Just ask and negotiate when things come up.
- Don’t let the little things get you down
- I’ll admit it. Each time a new issue came up, I was annoyed. But, I tried to remember why we were doing this and kept pushing through.
- In the end, this all probably cost a few hours in phone calls and visits. And $1,500 after the seller’s credit was accounted for
- That’s not bad considering the wealth that this property will create for us and the hours of my time it will give me back in the form of financial freedom!
- To me, this is the key. Recognizing this simple fact, that small initial investments (in money, time, bumps in the road) will lead to high future rewards is the difference between those who achieve financial freedom and those that don’t!
- Learn to laugh
- It always helps!
If you are interested in learning more about real estate investing as a full time physician like me, check out these posts!
- A Real Estate Investing Guide for Physicians
- Powerful Case Study of Passive Hustle in Real Estate Investing
- 3 Ways to Strengthen Your Real Estate Offer
- 5 Important Questions to Ask Your Investor Real Estate Agent
What do you think? Have you made any mistakes in real estate investing? How do you handle the headaches? Let me know in the comments below!