What Do You Do When Repairs and Maintenance Get out of Control?
- Thread starter NeilUttamsingh
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One should not ignore the fact that cash-flow is just one of real estate's monetary benefits. There is also the usually bigger benefit of equity creation through mortgage paydown and value upside. With 25% down and no value upside and no cash-flow you can make 40% in 5 years and about 90% in 10 years just by ( having tenants) paying down the mortgage !
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Hi Greg
I understand what you are trying to convey.
However you have incorrectly defined commonly used and accepted terms - this can confuse readers.
The word you are looking for is opportunity cost - try this in the future over "forced cash flow".
An increase in down payment does not change the operating the income before financing costs but it certainly does - using widely used English - increase cash flow.
The desirability of an investment property might or might not be influenced by the financing costs and there fore the down payment used and this will vary from investor to investor. The greater the down payment, the greater the margin of safety.
I understand what you are trying to convey.
However you have incorrectly defined commonly used and accepted terms - this can confuse readers.
The word you are looking for is opportunity cost - try this in the future over "forced cash flow".
An increase in down payment does not change the operating the income before financing costs but it certainly does - using widely used English - increase cash flow.
The desirability of an investment property might or might not be influenced by the financing costs and there fore the down payment used and this will vary from investor to investor. The greater the down payment, the greater the margin of safety.
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True except we are only talking about cash flow.
If you want to talk about the other factors that is different.
Equity for example. Only has value when you sell or when you pull it out. Personally I believe when a tenants rent money is applied toward the principal on a property that is actually my money applied to the principal. I am forced to either sell or refinance to actually access my own money.
If I pay down my mortgage with my own cash that is again my money that is creating equity. There is no net gain by using my own money to create equity.
In addition if we talk about appreciation this has no bearing on paying down a mortgage. A $300,000 property will increase in value exactly the same amount whether it is 100% financed or purchased outright for all cash.
So appreciation is not dependent on cash injected into a property, equity is created through mortgage pay down with my money, cash or tenants payments, and cash flow is not directly impacted by investing cash into a property.
My perspective indicates that cash has no bearing on cash flow, appreciation or equity. I assume of course that the tenants payment toward principal pay down is actually my money and is a form of forced savings. Nice to have but it is actually my money at midnight on the first of each month but I have to pay taxes on it and wait longer to get my hands on it.
I am simply not seeing actual monetary benefits of cash investments in properties based on my principals.
However what I do recognise is a psychological reduction of monthly financial stress in situations where cash flow is such that bills are not being meet. Rather than covering the shortfall with cash savings they are directed toward the mortgage to lessen the monthly financial commitment.
This of course is only a physiological stress reliever as $1 still equals $1 regardless of when it is removed from the pot.
If you want to talk about the other factors that is different.
Equity for example. Only has value when you sell or when you pull it out. Personally I believe when a tenants rent money is applied toward the principal on a property that is actually my money applied to the principal. I am forced to either sell or refinance to actually access my own money.
If I pay down my mortgage with my own cash that is again my money that is creating equity. There is no net gain by using my own money to create equity.
In addition if we talk about appreciation this has no bearing on paying down a mortgage. A $300,000 property will increase in value exactly the same amount whether it is 100% financed or purchased outright for all cash.
So appreciation is not dependent on cash injected into a property, equity is created through mortgage pay down with my money, cash or tenants payments, and cash flow is not directly impacted by investing cash into a property.
My perspective indicates that cash has no bearing on cash flow, appreciation or equity. I assume of course that the tenants payment toward principal pay down is actually my money and is a form of forced savings. Nice to have but it is actually my money at midnight on the first of each month but I have to pay taxes on it and wait longer to get my hands on it.
I am simply not seeing actual monetary benefits of cash investments in properties based on my principals.
However what I do recognise is a psychological reduction of monthly financial stress in situations where cash flow is such that bills are not being meet. Rather than covering the shortfall with cash savings they are directed toward the mortgage to lessen the monthly financial commitment.
This of course is only a physiological stress reliever as $1 still equals $1 regardless of when it is removed from the pot.
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Adam, yes and no.
I am fully aware of the term Opportunity costs. Simple cause and effect terminology. Opportunity cost being the cause "forcing cash flow' being the effect.
Money invested in a property without consideration of Opportunity costs creates "forced cash flow".
As far as injecting cash into a property increasing cash flow is concerned this is the smoke and mirrors of a sales pitch. I am a simple person and prefer to use simple math. Names and terminology do not change the bottom line. Yes increasing cash reduces monthly financial stress but not income.
IN addition injecting cash does not in reality increase cash flow from the overall perspective of a investor as you are the one that has pointed out "Opportunity costs". Taking cash from one investment does not have a increased effect on cash flow. You can not move money from one vehicle to another without offsetting the gain on one with the loss of the other. Zero net change in cash flow.
To clarify we are talking the difference between cash flow and "positive" cash flow. Two different animals the former of which may increase or decrease with cash invested the latter does not when considering "Opportunity costs".
I am fully aware of the term Opportunity costs. Simple cause and effect terminology. Opportunity cost being the cause "forcing cash flow' being the effect.
Money invested in a property without consideration of Opportunity costs creates "forced cash flow".
As far as injecting cash into a property increasing cash flow is concerned this is the smoke and mirrors of a sales pitch. I am a simple person and prefer to use simple math. Names and terminology do not change the bottom line. Yes increasing cash reduces monthly financial stress but not income.
IN addition injecting cash does not in reality increase cash flow from the overall perspective of a investor as you are the one that has pointed out "Opportunity costs". Taking cash from one investment does not have a increased effect on cash flow. You can not move money from one vehicle to another without offsetting the gain on one with the loss of the other. Zero net change in cash flow.
To clarify we are talking the difference between cash flow and "positive" cash flow. Two different animals the former of which may increase or decrease with cash invested the latter does not when considering "Opportunity costs".
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Hi Greg,
A 40K expense for a new apt bldg roof which immediately increases its value by 80k (example) is a good thing (for most)! we have to distinguish financially between our different expense types in order to properly understand our properties' performance.
Regards,
Nir
A 40K expense for a new apt bldg roof which immediately increases its value by 80k (example) is a good thing (for most)! we have to distinguish financially between our different expense types in order to properly understand our properties' performance.
Regards,
Nir
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Yes some expenses can increase property value I am simply trying to convey that paying down a mortgage does not increase the true income or value of a property.
For those with 1-6 units, I think it's worth the effort to learn to be somewhat a handyman.
This helps you to control your expenses. You can choose to hire out if you have good cashflow, or do it yourself, if you have time. So why not invest a little time to read on basics of drywalling and electrical circuits, for example? I don't think it will take away time from looking for other investments.
For people with multifamily units, maybe it's better to let others do the work since expenses and incomes are more predictable or stable.
The other benefit for being a handyman/investor is that they tend to freak out less and have better sleep at night when defects are observed. Other investors get scared too easily at the site of a mouldy bathroom, for example.
Just my opinion.
kir
This helps you to control your expenses. You can choose to hire out if you have good cashflow, or do it yourself, if you have time. So why not invest a little time to read on basics of drywalling and electrical circuits, for example? I don't think it will take away time from looking for other investments.
For people with multifamily units, maybe it's better to let others do the work since expenses and incomes are more predictable or stable.
The other benefit for being a handyman/investor is that they tend to freak out less and have better sleep at night when defects are observed. Other investors get scared too easily at the site of a mouldy bathroom, for example.
Just my opinion.
kir
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We act as our own general contractor for all our renos, and do most of our handyman work ourselves. Plumbing/electrical type stuff we leave to people who are certified to do it.
I don't think it hurts to do the work yourself, but it's not necessary either. One thing I find is when I've done something myself before, I know the right questions to ask and how long things should take when I'm getting quotes/bids from subcontractors to come and do an individual job. Someone without that experience could just get a few bids from general contractors, accept the additional markup, and only buy properties that work within those criteria. It's not a better or worse plan, just different.
Regards,
Michael
I don't think it hurts to do the work yourself, but it's not necessary either. One thing I find is when I've done something myself before, I know the right questions to ask and how long things should take when I'm getting quotes/bids from subcontractors to come and do an individual job. Someone without that experience could just get a few bids from general contractors, accept the additional markup, and only buy properties that work within those criteria. It's not a better or worse plan, just different.
Regards,
Michael
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[quote user=kir] For those with 1-6 units, I think it's worth the effort to learn to be somewhat a handyman.
This helps you to control your expenses. You can choose to hire out if you have good cashflow, or do it yourself, if you have time. So why not invest a little time to read on basics of drywalling and electrical circuits, for example? I don't think it will take away time from looking for other investments.
kir
All depends how you value your $/hour and the quality of work that you do.
The clients I have that own the best kept properties do a lot of work themselves. That's how they add value to their business.
The clients I have that have the biggest asset base don't lift a finger and don't get calls on weekends. Who cashflows more and has the lowest expenses? Sometimes the DIYer, sometimes not! Who has the best quality of life? Can't really say!
The great part about real estate is every investor gets to make this (and every other) decision for themselves and tailor their business to their strengths.
This helps you to control your expenses. You can choose to hire out if you have good cashflow, or do it yourself, if you have time. So why not invest a little time to read on basics of drywalling and electrical circuits, for example? I don't think it will take away time from looking for other investments.
kir
All depends how you value your $/hour and the quality of work that you do.
The clients I have that own the best kept properties do a lot of work themselves. That's how they add value to their business.
The clients I have that have the biggest asset base don't lift a finger and don't get calls on weekends. Who cashflows more and has the lowest expenses? Sometimes the DIYer, sometimes not! Who has the best quality of life? Can't really say!
The great part about real estate is every investor gets to make this (and every other) decision for themselves and tailor their business to their strengths.
A home inspection every 2-4 months should make us aware of upcoming repairs.Why wait till the end and let all maintenace pile up.Having a MC(Maintenace Checklist)for all the properites should not surprise us for anycoming Maintenance.And always get the feedbacks from the customers(tenants) ,how the house is doing and what they think where it might need repairs.Great tenants would always suggest or at least point out things that might need attention that you cant see while doing a work through inspection.I have something like the insurance companies do called deductiable.Any Repairs that I do which is under 75 dollars, customers would be responsible for the first 75.Most tiny expenses can be dealt with 75.I always have a doctor and a Plumber as a good friend.Hiring someone else to do the jobs could be costly unless its major like someone else mentioned too - ie. electrical roofing foundation.We should calculate if its worth it to fix it ourselfs.I dont make 100 an hour but if I can save 100 in an hour and something I can repair, damm right I will do it.
Need to still educate myself.Thank you everyone for the great advice and thank you Joe R.
Ronald.
Need to still educate myself.Thank you everyone for the great advice and thank you Joe R.
Ronald.
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[quote user=kir]For those with 1-6 units, I think it's worth the effort to learn to be somewhat a handyman. This helps you to control your expenses.
Speaking for myself, I disagree. Buying a property at a good price helps me control my expenses moreso than the effort doing repairs myself.
If I have to rely on doing my own work in order to have more control on my expenses then I have a problem right there.
[quote user=kir]You can choose to hire out if you have good cashflow, or do it yourself, if you have time. So why not invest a little time to read on basics of drywalling and electrical circuits, for example? I don't think it will take away time from looking for other investments.
Why? Because it will take time away from doing something that I want to do compared to something that I don't want to do (i.e. doing my own repairs).
I don't want to read on the basics of drywalling or electrical circuits.
[quote user=kir]The other benefit for being a handyman/investor is that they tend to freak out less and have better sleep at night when defects are observed. Other investors get scared too easily at the site of a mouldy bathroom, for example.
I'm not a handyman and I don't freak out so I find that opinion to be unfounded.
Just my opinion.
Speaking for myself, I disagree. Buying a property at a good price helps me control my expenses moreso than the effort doing repairs myself.
If I have to rely on doing my own work in order to have more control on my expenses then I have a problem right there.
[quote user=kir]You can choose to hire out if you have good cashflow, or do it yourself, if you have time. So why not invest a little time to read on basics of drywalling and electrical circuits, for example? I don't think it will take away time from looking for other investments.
Why? Because it will take time away from doing something that I want to do compared to something that I don't want to do (i.e. doing my own repairs).
I don't want to read on the basics of drywalling or electrical circuits.
[quote user=kir]The other benefit for being a handyman/investor is that they tend to freak out less and have better sleep at night when defects are observed. Other investors get scared too easily at the site of a mouldy bathroom, for example.
I'm not a handyman and I don't freak out so I find that opinion to be unfounded.
Just my opinion.