When It Rains, It Pours!

So far in the years I've been writing this blog, it's been 95% positive.  Sure there have been some unexpected expenses, 1 almost eviction, and a couple of deals we didn't move forward on, but it's all been what I'd consider normal.  This post will be long but probably one of the more important ones I've written.  It will help to keep you grounded on your real estate journey plus go to show you how preparation is so key!  We were prepared for what you're about to read but that doesn't make it any less disheartening.  So without further ado, here is basically what has happened in the last ~45 days.

Let's start first with what was going to be our 3 newest properties.  This would have taken us to 21, but alas we are still at 18.  Not too shabby though being at 18 units after just 6 years.  Our first 2 properties that we will discuss were through our turnkey firm that we've purchased 3 previous properties with.  We offered on the 2 properties an amount that based on our calculations was the correct amount based on the rental income.  The properties were actually rented for the amount promised.  However, we had an appraisal that was $16k less on one and *$36k* less on the other.  You read that right.  These are sub-$100k properties as well.  Appraisals on SFR's aren't done on the income approach.  They are on the comparable approach.  The mistake we made was we ordered the inspections before the appraisals came in.  We had success in the past so we could argue we had our basis covered.  The bank we used had also had some issues with flipped properties being returned to them via foreclosure.  So instead of going with an in-house evaluation, they decided to stand by the appraisal even though it was an appraiser has consistently been incompetent.  I say that because 2 years ago the bank threw out an appraisal from this person because it was so low and did an in-house evaluation which allowed us to close that deal. They would not do that for these 2 and we were stuck.  We had to foot the bill for the appraisal and the inspection ($650 each) and we had to back out.  We could have at least save $250 by not ordering the inspection.  Lesson learned.

The 3rd property was an REO at the bank where we made an offer based on the numbers and it was accepted.  The offer was a good 35% below market value.  Having learned our lesson on the previous 2, we went by the property before going under contract and we found a tree laying on the house, mattresses in the backyard and a tenant telling us the hallway had flooded 6 months ago.  There was all kinds of damage in this house and the tenant was just rattling off all the stuff that needed to be fixed.  This was a pretty easy decision and we walked away.  So inside of 10 days we walked away from 3 deals (2 of which was under contract).  Fortunately, this one didn't cost us anything to walk away from.

Next, let's talk about the apartment we just purchased and what happened.  It turns out that one of the units was basically destroyed upon move out.  Holes in the walls, destroyed carpet, you name it, it happened. What it boils down to is ~$6k in unexpected repairs and cleanup.  We are going after the tenant for the money and if anything comes of that, I'll be sure to let you know.

Now, let's talk about the bevy of unexpected expenses.  Below is a list of unexpected expenses that occurred across our properties in the past ~45 days that resulted in about $4k more on top of the already $6k from the apartment unit:
-- *2* Hot Water heaters went out
-- An AC unit went out
-- Flooring needed to be replaced (just old)
-- Other Misc Expenses.

Maybe we've been lucky, but these 2 hot water heaters are the first in 6 years and the AC unit was the first in 6 years as well.

We also just received word that a tenant filed bankruptcy so there is that to attend to.  Perhaps I'll write a post about that when it's all said and done and it's our first one.

WHEN IT RAINS IT POURS!

So there is a brief synopsis of the last 45 days.  3 properties that we walked away from, $10k in unexpected (more than normal) expenses, and a tenant in bankruptcy.  Merry Christmas! :)