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Real Estate Investing and Expecting the Unexpected

The following is a guest post by Riley from Young and the Invested

Real estate investing often meets unexpected pitfalls, such as acquiring a money pit, handling overly needy tenants, or buying in an area which did not measure up to your expectations. These are all the nature of the business and should be accounted for before you enter the market.

In my case, I am a landlord who encountered two unexpected, yet informative experiences early in my real estate investing career. In a classic cause and effect scenario, one major instance of damage led to the discovery of a safety hazard in need of immediate action.

While both put my tenant at risk, the latter led to a replacement mandate for every owner in the building. This led to a complex-wide special assessment you come to loathe as a condo owner. But like all things in life, unexpected expenses crop up and hopefully you have been smart enough to budget accordingly.

The subject of this post will be the trying time I had the pleasure of experiencing early in my real estate investing career. It is fitting the story takes place at my condo, the investment property I felt most certain would present the fewest problems.

Clearly, there was an expectations gap and reality had other things in store.

My Real Estate Investment – A Condo in a 14-Story High Rise

When I started my real estate investing adventure, bright-eyed and bushy tailed, I knew being a property owner would present its challenges. This did not dissuade me from venturing out, but rather served as a caution I needed to observe for myself and fully recognize.

When I bought my condo in New Orleans, I lived there for almost 3 years. The unit presented a great location near my job, offered me my own space, and most importantly, represented a great value in a rapidly improving area of town.

During my stay, I was fortunate only to encounter one clogged drainage pipe from my air-conditioner compressor. Otherwise, the unit never gave me a problem and led me to believe the maintenance and upkeep would not be a hassle. Expectations can be a dangerous thing.

When I moved out, I decided to lease the unit and thereby enhance my return on the real estate investment. Initially, I thought I would use any free cash flow to pay off my mortgage faster, but first I decided to build up a reserve to guard against unexpected repairs or unit vacancy.

My experience of requiring little maintenance, when combined with a property manager on site, made leasing the unit a foolproof decision in my mind.

In many ways, the arrangement paid off and was ideal as an investment. However, despite budgeting for repairs, I hadn’t fully prepared myself mentally for them. In my building, those responsibilities fall solely on the unit owners’ shoulders and will crop up whether you expect them or not.

And when stuff breaks or requires attention, I’ve come to learn some repairs can be managed with less urgency while some require immediate attention. This is the story of the latter.

The Emerald City

My trying real estate investing story starts not in New Orleans, where I live and own the condo, but 2,500 miles away in the Emerald City, Seattle, Washington.

In late 2017, my family decided to visit my brother in Seattle for Thanksgiving. He had recently moved there after a lifetime of pining for the Pacific Northwest and found his place amongst his friends who had moved there ahead of him.

We planned to stay for the 4-day weekend and see what the city had to offer. After visiting Gas Works park, the Space Needle, Chihuly’s Glass Museum, and Pike Place Market, our health took a turn.

Seattle, famous for its wonderful fall weather (sarcasm), got my wife and I sick. It’s unfortunate because our health in no way reflected our time spent in the city. I can’t wait to go back.

Little did we know our health was soon to be the least of our problems.

100 Hours of Exhaustion and Desperation

Having trouble sleeping with congestion and all the ailments associated with a cold, the last thing we needed was a 3 AM phone call from my tenant in New Orleans. She called to tell me the bathroom ceiling had collapsed, and the debris had fallen all over the bathroom and hallway floors.

Partly groggy from the cold medication and partly delirious from the time of night, it took me a few moments to assess the situation and what needed to be done remotely.

After talking through the situation with my tenant, I immediately offered to pay for her to stay in a hotel until I could get this repaired. Almost serendipitously, she had other accommodations available through her work, a nice hotel downtown.

She remarked how she had intended to use her free stay benefits but never found the time. When life closes a door, it opens a window. Or, in this case, when life collapses your bathroom ceiling, it books you a free room at a luxury hotel.

Fortunately, we didn’t need to change our plans to leave Seattle early because we were headed home later that day. We would be able to assess the damage that same day and decide how best to proceed.

When we arrived, my tenant had already cleaned most of the debris and managed to secure the suspended light fixture to a wall. My 400 square foot efficiency suddenly had 20% of its ceiling in trash bags.

As it turns out, the cause of the ceiling collapse was a leaking pipe from the unit above mine. Apparently, over the course of 10 years it had slowly dripped onto my bathroom ceiling.

Much like the straw which broke the camel’s back, the final drop tipped the weight of the ceiling and forced it to collapse. The strangest part was the lack of visible water damage prior to the event.

Knowing I could not repair this myself, I was able to hire a contractor through a recommendation of the building manager. Within 36 hours, he was on site and ready to begin his repairs.

He removed the metal grating left behind from the formerly-attached sheetrock ceiling, ran fresh wire to the new lighting fixture, and replaced the new ceiling and walls which had been damaged.

Compounding Problems

In the process, he discovered a major malfunction with my electrical box housed in the bathroom. When the company designed the box in the 1950s, it had a design flaw which could result in a short-circuit and starting a fire.

As you can imagine, this tendency to short-circuit would only increase when exposed to condensation (i.e., from water damage which had accumulated over the previous decade).

My contractor offered to refer me to an electrician, but we soon found out he wouldn’t be available for at least a week. He also quoted me a price I couldn’t believe was accurate.

After speaking with my father, an electrical engineer, he said this would be something we could handle ourselves. However, we would need to replace the circuit breaker box before the contractor could finish the wall replacement around the box.

Otherwise, we’d have to re-replace the wall. That would be more time, more money, and more inconvenience for my tenant. The contractor told us it needed to be replaced within the next 24 hours or he’d have to return to make the wall repairs in 2 weeks, which was unacceptable.

Facing a tight schedule, my dad and I had to size, buy, remove, replace, and rewire the box ourselves.

Working with urgency, we worked all night to install the new box in time for the contractor to replace the wall in the morning.

Exhausted, still sick, and working under the cover of darkness (no power and no daylight), we managed to remedy the entire situation in a little over 100 hours.

We also saw a way to save money by doing the circuit box replacement ourselves. As for the ceiling, the unit owner above me assumed full responsibility and paid the contractor in full.

Later that day, my tenant was able to move back into the unit. I never thought such a small condo could lead to such a big problem.

Lessons Learned from Real Estate Investing

From my story, I hope to convey the following lessons:

  • Be prepared for anything as a landlord. Anything can happen. Try to keep a level head because losing your cool in situations like this can lead to poor outcomes. If you can roll up your sleeves and put in the work necessary to maintain your real estate investments, they can make a lot of money and prove to be worthwhile in the long-term.
  • Always keep your tenant’s interests in mind. I want to provide my tenants a high-quality living experience in exchange for fair rent. When I think of my tenants, I think about how I would want to be treated by a landlord. Thinking this way guides me not to cut corners and always keep their interests in mind.
  • No investment is without risks. Despite this investment providing a good return, it still comes with risks. Much like investing in index funds, there are still ebbs and flows with how your returns accumulate. The importance is to own and maintain the property over the long-term to see true results.
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