Showing posts with label property maintenance. Show all posts
Showing posts with label property maintenance. Show all posts

Thursday, January 31, 2019

A Landlord Toilet Story with Numbers

When a tenant calls, I expect an issue

It's been almost five years since we acquired our first rental property. Still, every time a tenant calls, I hesitate before picking up the phone. I know that they wouldn't call me if everything was going smoothly. 


Tenants only call for two reasons:

1) They can't pay the rent on time
2) There is a repair or maintenance issue

Either way it's not a happy call. So I dread picking up the phone. I look at the phone display with the tenant's name. I count down in my mind.

Five, four, three, two, one. Then, I pick up the phone.

My skin is getting thicker.

After five years, I know that whether I pick up the phone now or listen to the voice message a bit later, the issue will need to be addressed. I also know that the sooner I resolve it, the least costly it will be. Rarely, I see issues resolving themselves. Unfortunately, most of the issues not only stick around but also worsen rapidly whenever I procrastinate.

However, I also learned that there are always different ways to resolve an issue. The easiest way is often the most costly.

Let me give you an example.

What's the Issue? 



O-oh! Hard water, ruined tap
A couple of weeks ago, my tenant called and let me know that they have a few problems: the shower tap is broken, kitchen and laundry room faucet leak.
I scheduled a local plumbing company. They visited and gave me a quote....

I always expect the worst. So I wasn't even in complete shock. But still... this specific quote made me nauseous.

It's January - the first month of the new year - and the cost of this repair basically wipes out most of my profit for the entire year. 


Any future maintenance issues at this place would eat away cash flow from other properties.

How is this possible? All it takes is a broken tap and two leaking faucets?

I reviewed the quote:

Service Charge   $49.99
Kitchen Faucet   $599.45
Laundry Faucet  $368.31
Shower Valve Remodeling Plate $192.33
Handle Wall Mount Tub & Shower w/ Valve $911.50
Become an Advantage Plan Member $99.99 and get 15% off
Member Discount ($248.60)
Tax $256.49

Grand Total: $2,229.46


We thought we could
handle the easy stuff 
That was the worst case. The best case quote was for $1,420.13. Better, but still bad.

The quote seemed high. I just got my own new bathroom faucet for $47 off Amazon. $599.45 for a new kitchen faucet seemed absurd in comparison!

I checked with my property manager. Does the price seem reasonable? He'd quote around $1,200 for the worst case. I called a different local plumbing company. They quoted $1,500 for the worst case.

My husband and I went to our favourite store. You guessed it right - The Home Depot.

We decided that we'd at least be able to get the easy stuff done on our own. Then, call the plumber for the hard stuff and save that way.

We showed the tap picture to a Home Depot staff member.


How do we go about it? 


In the best case, they told us, we'd be able to buy the parts and replace what's been broken. We just had to know exactly the brand and type of the faucet and taps.

In the worst case, we'd have to call a licensed plumber. They didn't recommend that we'd attempt to cut the tile on our own. We didn't look handy enough...

This time we were lucky!


My husband was able to replace just the broken parts. We decided not to worry about the laundry faucet for now as the issue seemed to be very minor when we examined it up close. So my husband fixed the kitchen faucet and the shower tap.

Actual Costs

Aaawwww....
My husband fixes our tenants faucet

Manor faucet    $79.98
HANDLE         $13.49
FLANGE          $5.92
FLANGE          $5.92
WASHERS       $3.94
CARTRIDGE   $9.56

Tax: $15.45

Grand-total: $134.26





Problem Solved!

All I can say is: Tenants are happy! We are happy! 


Friday, December 28, 2018

When Frugality Fails

Being a landlord can feel EXTREME
Earlier this month, I started feeling as if

someone somehow 
made 
the God of Appliances 
MAD


Every time I picked up the phone, I heard one of my tenants deliver the bad news.

It started on Sunday morning.

Ring-ring. My fridge stopped working.

Monday morning. Ring-ring. My dryer stopped working.

Monday evening. Ring-ring. The washing machine doesn't drain.

At that point, I made a strategic decision of letting the phone ring and go to voice mail, while I was sorting out all these appliances issues.

Luckily, this was it for the time being!

Extreme Efforts Being Frugal


Most properties I get, come with appliances and in most cases they are pretty old. Hence, I expect at least some of the appliances would break fairly soon after the purchase.

In the past, I always looked for a used appliance to replace the broken one. I thought this was the most cost effective approach.

For two to three hundred dollars, I could find a decent used washer, dryer, stove or whatever needed. A new appliance would be about $500, almost twice more expensive.

With a used appliance, I also had to figure out a way to deliver it to the tenant, get it installed, and get rid of the old broken one.

Luckily, my husband is quite handy and could help with most of this.

This is How We Did It


I'd find the most affordable decent used appliance and negotiate the price.

Then, coordinate child sitting, so we can free up either a Saturday or a Sunday.

Our weekends are packed with our youngest son's Russian lessons, music, hockey, and occasional birthday parties.

Our youngest son is nine and the oldest is almost 19. My parents and my-in-laws have 6 grand kids each. They used to be eager and excited to babysit the oldest couple of grand kids.

Let's be honest, after 19 years on grand-parents duty, I can't say any of the grand-parents are thrilled when I ask them to spend a day driving grand son #6 back and forth, trying to bribe him with just the right amount of doughnuts, chocolate milk, and chips as he goes through a back to back list of all sorts of developmental activities and sports.

Having said that, more often than not, our parents still agree to help us out.

Childcare arranged - Yay!

Next, we'd borrow our friends' mini-van. Our friends have three kids of their own. So this is a hassle for them as well. They have to move car seats, strollers, and downsize their life for the day every time we need to borrow their car.

I'm grateful every time they help us out! To thank them we always bring back their car with a tank-full of gas.

Transportation Arranged - Yay!

The following step is to make an appointment with the tenants, at least 24-hours ahead. This is usually the easy part since the tenants look forward to getting a working appliance.

It has to be on the weekend, though! Because my husband has a day job. All this investing jazz is happening after hours and on weekends.

Tenants on Standby - Yay!

On the day of, usually a Sunday


1) Wake up early in the morning, seven-ish

2) Get Starbucks, it's going to be a long day!

3) Pack and drop off the child

4) Give extremely-detailed-instructions to the grand-parents about all the activities they have to tackle including a back up plan in case the child is in a whiny mood

5) Get the mini-van from our friends

6) Pack all tools and hardware

7) Remember to take the key, in case tenants aren't home

8) Go and get the appliance from the seller, typically someone I found on Kijiji

9) Drive to the tenant, either to Barrie or Guelph

10) Attempt to install the appliance

11) Find out that something doesn't work or is missing - pipes, outlets, drains, narrow doorway. It's guaranteed that something is going to be messed up or in our way.

12) Go to the hardware store for the parts and tools, minimum twice

13) Finish appliance installation super-late in the evening

14) Roll out the old appliance to the curb. Comply with local city and safety rules (ex., if it's a fridge, take off the door!)

15) Get fast food. We are super hungry and done with all the snacks by this time

16) Drive back to Toronto. No traffic on the way back - Yaaay!

17) Fill up the tank and return the mini-van

18) Pick-up the child from the parents

19) Go to bed at two or three am

20) Wake up four hours later

The job is done! Yay!

How Much Money-Wise?


With do-it-yourself approach, we'd pay about $300 for the used appliance, $50 for gas, $80 for a full tank of gas as a Thank You to our friends, get coffee, fast food and realize one out of every four new used appliances would break within several months after purchase and we'd have to fix it.

In summary, used appliance would cost about $600, while a new one would be about $800.

   Used Appliance      New Appliance   
Appliance$300.00 $500.00
Delivery$- $100.00
Installation$- $200.00
Starbucks for Two$12.00 $-
Fast Food for Two$20.00 $-
Gas & gas re-fill$130.00 $-
Fix New Used Appliance$132.50 $-
Total $ Cost$594.50 $800.00


How Much Effort-Wise?


In addition to dollar cost, we'd need to collaborate with and inconvenience a whole bunch of family and friends to coordinate appliance re-placement.

Collectively, we'd spend over 150 hours either putting in heroic efforts AND/OR sacrificing our weekend.

The result would be subpar. After all this time invested, our old new appliance will likely break soon or stay functional for just a couple more years. So we'd need to re-group and fix it again!


People InvolvedDo It Yourself Delivery /InstallProfessional Delivery/Install
Grandparents @ 12-14 hours20
Child @ 12-14 hours10
Friends @ 12-14 hours50
Husband @ 12-14 hours10
Self @ 2-4 hours admin work11
Self @ 14-18 hours inspiring my husband to put in heroic efforts over the weekend10
Handyman @ 2-3 hours01
Tenants @ 3-6 hours22
Total # Participants:134
Total Time Needed from everyone involved128 to 156 hours8 to 16 hours




With PROFESSIONAL help,
being a Landlord feels smooth

Landlord Job gets Easier with Professional Help

As my portfolio grows, appliances issue come up more and more frequently.

Sometimes, as often as three times a day!

My friends and family will NOT want me to hijack all their weekends, so that I can save $200 on an appliance.

I will never see my son again, if spend all my time trying to get and install cheap used appliances.


Also, my husband would very likely ask for a divorce if I queue up appliance deliveries and other handyman work for the next three-four-five weekends in a row...

Lately, I always go for NEW appliances and pay for PROFESSIONAL delivery and installation. 

This is the ONLY way I can scale to 50 doors.

Sunday, September 30, 2018

Plumbing 911!

Oh-oh! Plumbing 911!
Over the past couple of weeks, I had to deal with a few plumbing issues. Just wanted to share some pictures, so that you can see how simple or extensive a plumbing problem can get!

Urgent yet Easy Plumbing Issue


Our tenant called on Friday evening. Their basement was flooded. Every time they used a toilet, the water would back up in the basement. Urgent help, please! - tenant really needed help. It's unpleasant when you can't use the bathroom.

We called a few plumbing companies and were placed in their priority queue. We called and called! Trying to expedite the resolution. However, no one was available and most companies didn’t even return our calls. Thankfully, our tenant was quite understanding. We did our best to get help as fast as it was possible, but no luck until the end of the weekend.

It helps when you have good local connections in the area! 


This is one of the reasons why I’m working towards gradually shifting from self-managing all units towards partnering with a property manager.

Finally, we got an appointment scheduled for Monday morning.

Fortunately, it turned out that the issue itself was easy to fix.

The plumber cabled approximately 45 feet to clear blockage, finding it approximately 32’ in the drain line at the front of house. When he retrieved the cable, we found roots on the line.

Roots Blocked a Pipe

Non-Urgent yet Difficult Plumbing Issue

We recently acquired a duplex (the one we've split up into two units). During pre-purchase inspections, we identified two problems that needed to be solved:

1) Sewer stack rusted and needed to be replaced
2) After each rain, rain water mixed with sewage backed up into the basement.

The two issues were not urgent and didn't create too much inconvenience for the tenant - he knew we'd find a good solution and was not rushing us.






Our tenant recommended an outstanding local plumbing company! 


Two technicians visited us and did a lot within just a few hours:

• replaced the old stack with new ABS plumbing
• cleared sewer lines, removing calcium build-up and roots
• fixed broken plumbing under the utility tub in the basement
• replaced P-traps and some old sections of the lines
• cleaned floor drain and put a back trap on it
• there was only one section of the lines (6-7 feet) that could not be snaked and inspected with a camera.

Now, the first issue was resolved.

Next, we had to wait until it rained, to find out if the basement would flood.




Flooded! Not Again...


There was a big storm over night! Unfortunately, the basement still got flooded.

The plumbing company let me know that most likely the problem comes from the city lines.

However, we had to inspect the last section of our pipes, to make sure everything is in order on our end. Without this, the city would never start looking into the problem.

The plumbing team came prepared to inspect the last bit of hidden lines. Take a look at the pictures below to see what it took!

Now, we know that all of the plumbing under our house and up to the City line is in good shape.We'll wait for a rainy day to find out if the basement would still get flooded. Fingers crossed...

Getting ready to dig!


Where does this pipe go?

Holly, molly!

New Pipes!

No More Flooding (Hopefully!!)

Cleaning Up!





Friday, August 31, 2018

In The Landlord Paradise


I love flowers on the side of the house!
In the last post, I shared that I've been tolerating an eight-month long vacancy because of fear, which wasn't even my fear to begin with, but it still paralyzed me.

Now, determined to fix the issue, I set out to find a great tenant ASAP.

Determining Price


To determine the price, I analyzed all for-rent ads on Kijiji. There were 39 of them.

Out of 39, only eight were listed under “House Rental” and the rest were in “Apartments and Condos”.

Even though my unit is an apartment in a duplex, it comes with a basement and a backyard, and takes up a larger part of a two-story house. I decided to put my ad under “House Rental”. It seems to be fair and puts my ad into a bucket with less competition.

Out of 39, the majority of 21 ads were two-bedroom places like mine.

In some cases, prices included all utilities, some covered only some of the services, and some were with tenants paying for everything in addition to the rent. In my case, utilities must be included because meters are not separate.

During my analysis, I made the following big assumptions about the monthly cost of utilities:
  • ·         Water = $100
  • ·         Hydro = $200
  • ·         Water + Hydro = $300

I used these assumptions to calculate all inclusive price for all ads.

Next, I looked at two bedroom units by price and saw that out of 21,
·         6 were below $900
·         4 were between $900 and $1,000
·         6 were between $1,000 and $1,100
·         3 were between $1,100 and $1,200
·         2 were over $1,200.

Aiming to be in the middle and also making sure cash flow would be positive, I decided to price my unit at $1,150.



Placing the Ad

Kitchen Looks Great!

I placed the following ad:

Big 2 Bedroom Duplex for rent $1,150 all inclusive

$1,150.00 URGENT

Looking for responsible tenant(s) for this Spacious Move-In ready Duplex!

INCLUDES:
- Lots of Parking
- Large Patio & Backyard

HOME:
- Bright living and dining rooms
- Great functional kitchen
- 2 bedrooms with large built-in closets
- You'll love the spacious Bathroom (pls see pics)!

OTHER:
- Lots of storage space
- Central AC
- Appliances: Fridge, Stove, Dishwasher, Washer / Dryer

UTILITIES: all inclusive

Please text/call or email Anna at MY_PHONE / MY_EMAIL to book your viewing.

We'll be showing the unit this week on THURSDAY, FRIDAY and SATURDAY.

Please reach out to me now to book your viewing: MY_PHONE

Unreal Number of Inquiries


Living + Dining Remind me of Spain Villas - lots of white tile
I got a gazillion responses, mainly through texts!

I booked 31 viewings over four blocks of time: Thursday afternoon, Friday morning, Friday evening, and Saturday morning. Only two people are scheduled for Saturday morning.
So far, as of the end of Thursday, 20 people showed up out of 29.



Landlord Paradise


Since the level of interest turned out to be super high, I started to wonder if I’ve set the price too low.

I asked a few applicants how my unit and its price compare to other apartments they’ve seen. Most said that they are comparable; and only a couple of people said that I could charge a bit more. I checked with my property manager and he thought the price was right as well. It’s what people in the area can actually afford to pay for this size and type of a place.

It appears that the market is very landlord friendly. Lots of demand, and lack of units. Landlords get to choose from a large pool of applicants.

It’ll be a long time, before I forgive myself for an 8-month long vacancy in this landlord paradise type of market. Unreal. I’m such a la-la.


Home Alone: Ever Think a Tenant Might Come After You?

Source: Home Alone.
In my last post, I talked about a duplex conversion. Here’s a prequel to that story…

Eight months ago, we got a duplex in Chatham. The duplex has a one-bedroom unit at the front and a two-bedroom unit at the back. There was a door between the two apartments. I'll call it "The Door" for the remainder of this post.

At purchase, the small front unit was already rented to a tenant and the bigger back unit was vacant.

Long story short, my property manager and the tenant in the small unit did NOT start out with the right foot.

As a result, I was under the impression that the tenant in the front unit was a

  • frightening, 
  • sneaky, 
  • irrational, 
  • demanding, and 
  • crazy person, who is 
  • impossible to deal with, and 
  • who’d sue me at the drop of a hat. 
  • I was seriously afraid of her and her meaniness.


(Hmm... I was wondering if meaniness was even a word.
Now I know that it isn’t, but I’ll still keep it.)

By the end of 8-month long vacancy, the longest vacancy I’ve ever had,

I finally started questioning the absurdity of the situation.

After all, I am the owner of the property. My property manager is so scared of my tenant that he doesn’t take any action. I am so afraid of the tenant, because of how terrified my property manager is, that I haven’t done anything either for a very-very long time.

I know that every month without a second tenant costs me A LOT of money. The money that I don’t have. I am doomed unless I stop chickening out, step up, and take massive action. So I did….

Home Alone

This property is in Chatham, which is 3-hour drive away from home. I decided to come for a weekend and clean / paint / fix the back unit, so that it’s ready to be rented. If my property manager is too afraid to handle this, I’ll just deal with it myself.

I got to Chatham and kept to myself. I didn’t see the tenant face-to-face during the entire day. I cleaned, vacuumed, planned remaining action items around the unit, went to shop for small decorations for the upcoming showings, etc.

Source: Home Alone Movie - Bad Guy!
At sunset, I was starting to panic.

The darker it got outside, the more panicky I felt.

Finally, my brain started spinning and painting petrifying pictures…

I could hear my tenant having a guest over. They were watching TV…




My crazy-irrational thoughts went kind of like this:

“… There’s a door between the two apartments.

It doesn’t have a lock.

What if my tenant is indeed as horrifying as my property manager believes her to be?

What if she sneaks in during the night and kills me in my sleep?”

What if, there’s a lot of them next door?

How would I stay awake through the night to make sure that I’m prepared to run out of the house and call 9-1-1, if necessary?”

Survival Plan


Source: Home Alone Movie
I decided to set up my sleeping station on the main floor. I placed my sleeping bag strategically in the kitchen. As close as possible to the two exits: the main entrance and the patio door.

I couldn’t see The Door between the two units when I was laying down, but I’d only need to lean forward just a tiny bit to see it.

I tried very hard to stay awake.

I wanted my tenant to fall asleep first. The TV was still mumbling through the wall.

After a day of driving, cleaning, shopping, and working, with every minute passing by, it was getting more and more challenging to keep my eyes from shutting.

I put a Windex bottle next to my pillow. In the worst case, I’ll spray it into her eyes and run for my life!

I positioned a rolling chair right next to The Door with the intention that it would start rolling and make a rolling noise as soon as someone walks through The Door. And that'd wake me up!

I turned my computer on. It would be a lot more cheerful if I had youtube… but I didn’t want to use too much data on my phone.

Deadly silence on my side of The Door.

I turned on the only movie I had on my computer. Beauty and The Beast.

Bad decision! I dozed off before the first song ended…

OMG! She is Right Next to Me!


This is it.

I heard the sound of the rolling chair in my sleep.

It’s happening.

I opened my eyes, ready to run for my life:

“Oh, my gosh. I am so sorry! I just wanted to turn the AC up. I didn’t know you were here! I didn’t mean to scare you! Why are you sleeping on the floor? Would you like me to bring you a mattress?”, said my tenant. I could tell, she felt awkward.

As far as I can tell after meeting and spending some time with my tenant one-on-one, she is practical, to the point, and doesn’t plan to harm me or anyone else in any way.

I’m not sure what the actual misunderstandings and miscommunications have been about between the tenant and my property manager, but the "Horror Tenant" issue did cost me a lot of money, time, and stress.


Lesson learned –  Don’t let other people’s fears become your fears and put you into hibernation mode for months. If you have a problem, take action to start solving it.


Tuesday, March 13, 2018

Me vs The Door. I win!

Old Patio Door - Brrrr! cold
Hurray! The door issue is finally resolved. I was VERY frustrated with it! Here's the story.

Mid November, a tenant notified us that they had very severe draft coming from under the front door and also from under the patio door at the back of the living room.

Within a day or so, we  had our contractor come out to the house to look into it. It turned out that there was an easy fix for the front door, but the patio door was too old to be repaired. It had to be replaced. The wind was hauling through and around every inch of the door surface.




Tenant is Freezing! Let's Replace The Patio Door


The contractor called and reported his findings. He had an estimate prepared and went over it with me over the phone. I roughly knew how much it would be to replace the door since we completed a similar project several months ago at another property. The estimate sounded reasonable and within what I expected. We agreed to go ahead with a new patio door!

The contractor ordered a new door at the local hardware store. The new door was supposed to be delivered to his shop within the next couple of days. He called and explained new door specs to me in a lot of detail! He was super excited that the new door was 3-panel and talked extensively about how warm the house would be, once the new beautiful door is installed.

And at the end of the call, he also asked for a payment. I often pay for materials up front and labour upon completion. So this wasn't a surprise.

I thought I knew the contractor well. He finished a couple of jobs for me before. All of them went great - work done quickly and well. Tenants were happy with the quality.

So, without thinking too much into this, I sent the payment for the new door and asked the contractor to schedule work dates directly with the tenant as soon as possible.





Mistake #1 - I have no idea what I bought...


I paid money for a phantom door without doing ANY due diligence to check that there was actually a door purchased on my behalf. I paid simply because I thought the contractor was a good guy based on  the two times he worked for me before.

Instead I should have:

  • Asked for a receipt
  • Asked for a picture of the door that I was buying
  • Checked patio door prices on HomeDepot.ca

Now, when the door issue is behind me, I have to admit that I paid $1,275.77 for a new patio door. If you check at Home Depot, patio doors start at $565 + HST. There are 30 different doors that are cheaper than $1,275.77 and another 170 doors that are more expensive.

So, to this day, I don't know if I paid more than I should've... Was the door too fancy for my needs? Did I pay too much? Did I get a great door that will now last another 50 years? I will never know because I have no idea what I actually bought.

Mistake # 2 - Winter is NOT a good time to replace patio doors

No door - bad idea during Canadian Winter

Now, we had to wait for the weather to cooperate. This winter was brutal, especially in December and January. It was very cold and snowy. Contractor advised that we couldn't take out the door and keep the house open for a day or two when it was -30C outside.

In addition, the selected dates had to work both for the contractor who was always super busy and our tenant, who insisted on being present at all times personally. The tenant wouldn't agree that I come by and oversee the contractor instead, if they can't be home.

Eventually, after 3-4 weeks, everything got aligned: the weather, a couple of open days on the contractor schedule, and our tenant’s schedule.


Series of Unfortunate Events


Unfortunately, our contractor had a mild heart attack just a couple of days before the scheduled date. Obviously, health and life take precedence before the draft under any doors. Tenant was understanding of the situation. Luckily, our contractor recovered and got back on his feet over a few weeks.

Winter weather was still nasty! Once health issue was behind us, we all started watching the forecast waiting for a couple of warmer days. Finally, we scheduled the work. Yay!

On the day of the appointment our tenant had something urgent come up. They couldn't be home and asked to reschedule.

We now waited and watched the weather for the third time in a row... Finally, all good again: decent weather, tenant at home, and contractor is in good health and available. The new dates were scheduled! We set 3 days aside to make sure there is ample time to get the job done.






Mistake #3 - Don't Assign More Work When Previous Load isn't Done


Just  a couple of days before the appointment, the tenant got in touch. They asked us to take a look at several new items at the house:


  • A few outlets had no power on the main floor
  • Shower tap got broken and tenant (including their kids) had to use pliers to turn the shower on and off
  • A pipe leaked in the basement when they were using the washer

Since the contractor would be at the house anyway, I asked him to scope out these issues and let me know a quote.

The contractor called me back and explained that broken power outlets were a SAFETY concern and had to be addressed ASAP. Apparently, wires inside the electrical box were lose and several of them had signs of burning. He had to replace fuses, do some re-wiring, etc. I agreed that he should go ahead and address the safety issues, thinking that eliminating the risk of fire is a much higher priority than getting rid of the draft.

What I didn't expect was that these safety issues would take up ALL OF THE THREE DAYS. So by the end of the slotted time period, all of the new issues were addressed, but the contractor didn't even start on the door.... 

It turned out, that since the heart attack, the contractor wasn't aloud to drive a car. So the work took him longer than normally, because he had to take a bus to and from hardware store during the day every time when he needed some parts. His partner drove a truck, and gave him a lift when possible, but still capacity limitations became apparent. Tenant observed that the contractor only spent 2-3 hours a day working, while I was under the impression that he spent 3 full days onsite.

Anyways. New issues got resolved very fast! Old issue was still not started. 

We were now watching the weather again. Tenant started getting quite frustrated. The house was cold and they were concerned about really high heating bills. It was the end of January - 2.5 months have already gone by.


Mistake # 4 - Always be in Control. Excuses will NEVER end.


And for the fourth time, we scheduled several days. By this time the tenant was extremely anxious. They shared with me that they expected the contractor would find an excuse not to show up.

And he did.

Three days before the appointment, the contractor called me. He politely explained that, as he was preparing for the appointment and unpacked the door, he realized that the new patio door turned out to be welded rather than bolted. As a result, it would not go through the entrance door since it can't be taken apart. And since the front door is the only way to access the backyard in this town house, we'd have to postpone the appointment.... 

Well. This is when meditation practice comes in handy.

I counted 5 breathes in my mind before asking what he thought our options to overcome this hurdle would be... There were two options: 1) get a new bolted door which might be problematic, since manufacturer now makes all doors welded and we'd have to look for an older model; or 2) find a way to bring the door in through a neighbour's backyard.

I explained in detail that it was very important to finish the project and install the new door as soon as possible and that the tenant was not happy and I really needed all his help to get to a conclusion on this. I was offering help and asking if there was anything I could do to help. 

The contractor started calling hardware stores and by the end of the day he found an old model of the door, which could potentially be delivered early next week. Great! Let's do it. 

As a backup plan, we agreed that if there would be a hiccup or delay and the new door wouldn't be delivered early next week, we would implement a backup plan. 

Backup Plan


My husband and I went to check if there was a way to bring the door in through the back yard. We found out that one of the fences at the end of the backyard was only about 4 feet high. We thought that it would be possible, with enough man power, to bring the door in over that fence.

The neighbour was not home and we left him a note with our phone #. We also left our # and information with other neighbours. No response. Contractor told us that he also stopped by and left his card. No response. My husband and I went there again the next day at a different time of the day - no one home and no call back.

Contractor said that he wouldn't carry the door without the neighbour's permission since that would be trespassing. 

My husband and I made a decision that we would personally trespass and carry the door in, through the back yard. We clearly communicated this to the contractor: please, just bring the door, we will get it in for you, then please install it. We spent time on the phone re-iterating this plan. It seemed we all were on board with this backup plan.

Contractor assured us that he felt backup wouldn't be necessary since he already scheduled the delivery of a bolted door for Tuesday. Awesome! Even better.

By this time, tenant refused to pay rent. They explained that they paid hundreds of dollars for heating month after month after month and they were fed up with it. This was the first time ever when a tenant yelled at me. I hung up and submitted a court hearing application. I was very offended by the yelling. Draft or no draft, rent must be paid... However, I decided to find out how much extra heating costs my sloppy implementation of door replacement was causing.

Do You Know What Happened Next Tuesday?


You would not believe it. It was now mid February and winter started fading away. +7C outside. 

8:30 AM. 30 minutes before the appointment. Contractor calls. He'd have to postpone the appointment because it is pouring rain. It is very dangerous to work with power tools in the rain and since he'd be using power tools as he'd be installing the door, he can't proceed. He cannot risk his life and show up.

This time I was not even mad. I've become immune and emotion free. Having said that, all my dreams over the past few nights were strictly about patio doors.

I called the utilities company and found out that my tenants' actual heating consumption was super low through the winter. The service desk could only provide general averages to me, but it became obvious that if my tenants' bill was several times higher than average WHILE their consumption was several times lower than average, they hadn't paid their bills for a while. 

I no longer felt guilty. I knew that I just had to get to the end of this whole door situation. At the same time, it was obvious that I didn't have to worry about my tenants' high heating bill and reimburse them for extreme consumtion. Phew!

Grand Finale


I called the contractor a day later and realized that he still didn't have a new bolted door. Still, the biggest issue was that we couldn't carry the welded door in. Why I asked? I thought that a bolted door was supposed to be delivered back on Tuesday. Oh no - he thought that I didn't want it because I asked him to carry the welded door through the back yard.

Alright. I insisted that we schedule a day when he'd bring the welded door to neighbour's drive way. My husband and I would take full responsibility for trespassing and we'd have the door carried in.

In my mind, I set a deadline of the following Friday giving it final 9 days. I decided that if I wouldn't see a door by then, then that door probably didn't exist and most likely I had bought air for $1,275.77 . I already started asking my friends for trustworthy contractor referrals, so I could quickly find a replacement and start all over again. It wouldn't be the first time when I lose a deposit.

I discussed the situation with the tenants. We agreed to give this operation the last chance. We also discussed utility costs and rent payments and came to an agreement. Our court hearing was scheduled for March 26, just in case our verbal agreement wouldn't go as planned.

The End

Love the new door!
Super thick, 4-panel, warm home next winter :)
Drum roll!!! The following week, on Wednesday a new bolted door was delivered. The Contractor carried it in through the front door. He installed it and finished by Friday.

Somehow, there was a missing part on the lock of the new door, but at this point I was not going to worry about it. The contractor came up with a work around for it, so the door locked.

The bolted door, apparently, was $400 more expensive than the welded one. I asked the contractor to show me receipts for both doors and explained that I couldn't pay any additional money without seeing a receipt. He said that he'd gladly eat that cost given how many problems we ran into along the way. I told him that I appreciated it.

The contractor's computer mysteriously crashed and he wasn't sure how much labour costs we originally agreed to. The numbers in his journal were $200 higher than what my notes said. He agreed to go with the numbers I wrote down. I thanked him for that as well.

Door installed. After 3.5 months of struggling it was a Happy End after all. I am grateful and happy about it!

PS Lessons Learned


In future I will ALWAYS require:

  • a written work estimate including timeline and cost
  • a written agreement for full money refund if project doesn't get done by a pre-agreed upon date
  • receipts and a proof of purchase for all major purchases/materials before I pay for them 
  • invoice before I pay for the work done
  • myself to know market prices and key parameters of the most costly parts of a project.
I realize now that the best course of action would have been to use a specialized Doors/Windows company rather than a General contractor for this project. If someone changes doors every day, I'm sure they'd know about welded vs. bolted doors and how to deal with them. Even though this seems obvious, this realization only came to me after a couple of months of weather checking. 

I wish I could also make sure that no one ever gets sick and the weather is always great, but since that isn't an option, I'd just say that for all external work, I'd notify the tenants that they might have to wait till Spring. If I set expectations correctly, all the re-scheduling would've just been a part of the original plan.

You never know how the circumstances will play out and all the various factors that may work against you. So you need to have a planned way out of an existing engagement in case it fails. You shouldn't be making yourself a hostage of a contractor and/or a series of unfortunate events. 

Wednesday, February 7, 2018

Real Estate Income Property - Case Study #4 - Cash Flow Formula

Opportunity Awaits!
Two years into our 50 Doors adventure, we figured that it was much easier to have all our properties close together rather than scattered throughout Ontario. So we focused on Barrie, ON.

We were amazed at the crazy hot market and the speed at which housing prices were going up.

We were hunting for a new property where numbers would work and meet our cash flow requirements.

The idea was to keep repeating the same positive cash flow formula that had worked several times for us already.

It was very exciting that we started to understand the economics of the formula and could tell good deals from bad deals at least within the neighbourhood that we became familiar with.

Rental Income Property


One of the real estate agents who worked with us on a previous deal forwarded this listing. He knew it was a great opportunity and called houses like this "good bones". The structure and concept were great, but the place needed some TLC (aka tender loving care).

An elderly lady who owned the house decided that she no longer needed such a big place and wanted to move into a smaller home.

By the time we were looking at this property, we already owned two similar houses in the neighbourhood. Market was going up like CRAZY.

We got the first property for 185K and now, only two years later, similar homes were selling at 250K - 270K. That's 20% annual appreciation! Very dramatic change in a short time.

Rents went up by a lot as well from $1,200 per month to $1,450 (10% per year).

The increase of $250 in rent, given interest rates of ~3.25%, covered an additional 50K of mortgage. Or, if we put 20% down, it was enough to cover about 60K extra in property price. Meaning, if we got a property at about 240K (185K + 60K), we'd meet our positive cash flow goal.

We instantly saw the opportunity in this property! It was selling under market because it needed some cleaning: the owner smoked inside for three decades. Most local shoppers didn't want to deal with this even at a discount. 

Key features: 

  • Freehold town house  
  • Parking on driveway plus 1-car garage 
  • Main level: 
    • Entrance/hall 
    • Large living and bright dining room 
    • Kitchen including fridge, stove
    • Entrance to a nice, deep backyard with a porch
    • 1/2 bathroom 
  • 2nd Floor: 
    • Master bedroom 
    • 2nd bedroom 
    • 3rd bedroom 
    • Full bathroom  
  • Partially Finished Basement: 
    • Utility room with washer/dryer 
    • Family room with exit to backyard
  • An old shed takes up most of the backyard. It came with a dead squirrel.

    Purchase


    • Asking price: $225,000
    • Purchase price: $218,000
    • Found by a really awesome Real Estate agent Realtor.ca who worked with us on a previous deal
    • Owner occupied at purchase
    • Expected Rent: $1,450/month
    • Expenses:
      • Utilities: paid by tenant
      • Taxes: $200 / month
      • Insurance: $100 / month
      • Misc repairs and maintenance: $100 / month 
    • Expected NOI: $1,050 / month
      • Financing: 80 LTV, 30 year amortization, 5-year term, fixed 2.55% interest
      • Expected Cash Flow: ~ $350 / month

      Total Investment

      This property required a 55K investment. This is in line with the original plan and includes 10.5K in renovation costs.




      Investment Summary


      InvestmentAmount
      Downpayment/Closing45,214
      Capital Improvements10,448
      Total$55,662

      Cashflow and ROI 




      • Initially cash flow was projected to be $350 / month
      • Actual cash flow averaged at about $200 / month. The shortage is primarily due to two month vacancy in 2017 during renovation. 
      • Net profit including mortgage pay down is approx. $500 / month or 6K per year
      • ROI is ~ 20% over the two years and 10% annually on average

      Year 2014 Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
      Income
      Rents (@100%)17,400 17,463 34,863 17,432
      Vacancy1,800 2,196 3,996 1,998
      Total Gross Income15,600 15,267 30,867 15,434


      Expenses
      Taxes2,449 2,864 5,313 2,657
      Insurance1,379 1,480 2,859 1,430
      Repairs/Maintenance743 1,229 1,972 986
      Utilities533 0 533 267
      Admin/Advertising30 0 30 15
      Total Expenses5,134 5,573 10,707 5,354


      NOI10,466 9,694 20,160 10,080
      Mortgage - Interest Payment3,656 4,336 7,992 3,996
      Mortgage - Principal Paydown3,608 4,033 7,641 3,820
      Cash Flow3,202 1,325 4,527 2,264
      Net Profit (Loss)6,810 5,358 12,168 6,084
      Cash on Cash Return5.75%2.38%8.13%4.07%
      ROI12.23%9.63%21.86%10.93%

      Appreciation / Equity

      Based on MPAC assessments, the value of the property increased by 21K during the last two years. Once we include the equity gain in ROI calculations, return on investment becomes 30% per year:

      Total gain including appreciation: $21,000 + $12,168 = $33,168
      Total ROI including appreciation: 60% overall and 30% annually.

      This property is performing well and as expected. Knocking on wood... spitting three times over  my left shoulder. 



      History

      2018

      • January - tenant is fully caught up on all payments. YAY! 😀  
      • January -  notice to end tenancy for non-payment sent (N4). We agree to a catch-up plan.

      2017

      • December - no rent and still not fully caught up with previous shortfall.
      • October - tenant renews lease for a year! Hurray! Rent increase of 1.5% by $21/month. 👊
      • September to November - Several fixes needed at the house. The biggest one being installation of a fan in the bathroom to eliminate moisture and potential mold problem. I pre-paid a contractor who never got the work done. Read full story here. The good news is that this led to me finding a great new contractor who finished the job brilliantly and now helps us regularly on various tenant requests. 
      • August - notice to end tenancy for non-payment sent (N4). We agree to a catch-up plan.
      • July - tenants is short on rent due to change in career and taking on study courses. 
      • June - dryer dies. Got new dryer.


      2016 

      • October - Washer breaks. Got new washer.
      • September - New awesome tenants move in. Rent $1,450. 💪
      • September - New roof & new floors in bedrooms. Replaced carpet with laminate. Unit looks and feels gorgeous!
      • August - A tenant has been recommended by one of the neighbours. Very nice family! They agreed to wait until renovation is done and helped us picking colours for their new home. 
      • August - Painting throughout, cleaning throughout, minor fixes throughout. Power washed fridge door. Purchased and installed a dishwasher. 
      • July - One of the roommates finds a job in another city, the tenants move out a month early. Lots of garbage left in the garage and throughout the house. We discover a picture of a XL male organ on the fridge... in permanent marker. 👿
      • May - Young professionals and the student duct-taped an old window air conditioner to a 2nd floor window above the front door entrance. This was a disaster waiting to happen! Luckily, we mounted the AC unit properly before anything bad happened.
      • March - Two young professionals and a student move in. Six months term @ $1,350 rent. This was a discount of $100 from the $1,450 rent we aimed for. The reason this was good for us was because the tenants could move in right away on the 1st, so we wouldn't lose a month of rent. We planned to increase rent at the end of their term.
      • February - Major cleaning - 30 years of smoking - and minor fixes. This was when I discovered that if you try to wash smoked ceilings, you get rained on with brown nicotine drops. Cost < $500. 
      • February - Purchased the property





        Monday, February 5, 2018

        Real Estate Income Property - Case Study #3 - Bad Tenant


        Everyone makes mistakes. Unfortunately, this case study shows how my bad judgement and a poor choice of tenant resulted in two years of stress and big losses. The lesson I learned is - if you make a mistake, find the courage to fix it fast. I dragged my feet with the eviction for too long and, literally, paid for it.

        Rental Income Property

        Beautiful Home
        This beautiful semi-detached home is located in Barrie, ON.

        We were lucky to have met the seller, as she stayed at the house for a couple of months being our first tenant while finalizing the closing of her new home.

        The seller shared that she got the house at 20 and lived in it for 28 years while raising two amazing children.

        Based on her words, the schools and neighborhood were amazing. Neighbours were great and supporting: a lovely retired couple on one side, a professional woman and her son on the other side; and a couple with a sweet little girl across the street.

        The owner was certain that whoever would move in here next, would be happy. 

        Key features: 

        • Semi-detached house  
        • Parking on driveway plus 1-car garage 
        • Main level: 
          • Entrance/hall 
          • Large living and bright dining room 
          • Kitchen including fridge, stove, microwave and dishwasher 
          • Entrance to a nice, deep backyard with a porch 
        • 2nd Floor: 
          • Master bedroom 
          • 2nd bedroom 
          • 3rd bedroom 
          • Full bathroom 
          • Extra storage 
        • Finished Basement: 
          • Utility room with washer/dryer 
          • Family/exercise room 
          • Bathroom 

        Purchase


        • Asking price: $239,900
        • Purchase price: $231,000
        • Found on Realtor.ca
        • Owner occupied at purchase
        • Expected Rent: $1,450/month
        • Expenses:
          • Utilities: paid by tenant
          • Taxes: $200 / month
          • Insurance: $100 / month
          • Misc repairs and maintenance: $100 / month 
        • Expected NOI: $1,050 / month
          • Financing: 80 LTV, 30 year amortization, 5-year term, variable 3.25% interest
          • Expected Cash Flow: ~ $250 / month

          Total Investment

          This property required a 95K investment, of which a big chunk of 40K was spent on renovation.

          Initial expectation for renovation cost was 10-15K. Unfortunately, we made lots of mistakes choosing the right tenant and sub-contractors, which led to a much higher spending than planned.




          Investment Summary


          InvestmentAmount
          Downpayment$47,687
          Closing Costs$8,857
          Capital Improvements$39,121
          Total$95,665

          Cashflow and ROI 




          • Initially cash flow was projected to be $250 / month
          • Property has been barely cash positive over the first three years because of continuous tenant issues. 
          • Cash flow averaged $43 / month or 518K per year
          • Thanks to mortgage pay down, net profit is approx. $300 / month or 3.5K per year
          • Cash on cash return is practically 0% so far 
          • ROI is 4% over the four years and 11% annually on average

          Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
          Income
          Rents (@100%)2,900 17,400 20,000 40,300 13,433
          Vacancy/Non-Payment1,365 2,250 3,615 1,205
          Total Gross Income2,900 16,035 17,750 36,685 12,228
          Expenses
          Taxes585 2,395 3,003 5,983 1,994
          Insurance311 1,512 1,406 3,229 1,076
          Repairs/Maintenance446 170 3,745 4,361 1,454
          Utilities373 287 1,641 2,301 767
          Admin/Advertising45 0 0 45 15
          Total Expenses1,760 4,364 9,795 15,919 5,306
          NOI1,140 11,671 7,955 20,766 6,922
          Mortgage - Interest Payment796 4,712 4,594 10,102 3,367
          Mortgage - Principal Paydown683 4,160 4,268 9,111 3,037
          Cash Flow-339 2,799 -907 1,553 518
          Net Profit (Loss)344 6,959 3,361 10,664 3,555
          Cash on Cash Return-0.35%2.93%-0.95%1.62%0.54%
          ROI0.36%7.27%3.51%11.15%3.72%

          Appreciation / Equity

          Based on MPAC assessments, the value of the property increased by 33K during the last four years. Once we include the equity gain in ROI calculations, return on investment becomes 15% per year:

          Total gain including appreciation: $33,000 + $10,664 = $43,664
          Total ROI including appreciation: 46% overall and 15% annually.

          15% ROI per year is pretty good! This shows you that even in an absolutely horrible situation tenant-wise and after a streak of bad decisions, overall return can be fairly OK thanks to mortgage pay down and market appreciation. I got lucky!

          Appreciation is like lottery. Hence, we can't bet on it. Therefore, selecting a good tenant is a MUST going forward.



          History

          2017

          • Spring 2018 - Tenant is behind on rent. Got an eviction court order and agreed to a payment ctach up plan with the family. Yay! They are fully caught up on past rent now. Hooray!! 👍
          • December - Hired a great snow removal company after avoiding a fraud contractor
          • September - all pipes updated. New tenants move in. Gross rent up to $2,100 inlcuding utilities 😁
          • August - Pipe bursts 20 minutes before the appointment with the new tenants 😡
          • August - New contractor found and finishes the job brilliantly 😁
          • July - False Bed bugs issue
          • July - Contractor disappears, floors not finished.
          • June - New AMAZING tenants found. They will wait until all work on the unit is done. 😁
          • June - Cleaning, Paining, and more cleaning
          • June - Tenant evicted. Total cost 30K as outlined in this post
          • May - Eviction confirmation sent to Sheriff/Enforcement office
          • May - Eviction requested at Sheriff/Enforcement office
          • April - Plumbing issue resolved at $950. Water leaked from upstairs bathroom, ceiling damaged on the first floor. 💦
          • March - Notice to end tenancy served (N8)
          • February - LTB court hearing. Mutually agreed to a rent catch-up schedule. Shook hands with tenant agreeing that this was her last chance.
          • February - Water bill payment late. Balance $232
          • January - Application to evict submitted (L1). 
          • January - Rent paid consistently late notice sent (N8)
          • January - Rent non-payment notice sent (N4). Balance $2,900


          2016 

          • November - Water shut-off for non-payment. Balance per city $397. 
          • November - Rent non-payment notice sent (N4). Balance $2,200
          • October - Rent past due. Balance $750
          • August and September - Tenant caught up with rent as agreed.
          • June - Landlord and Tenant Board Hearing. Mutually agreed to a rent catch-up schedule.
          • May - Application to evict submitted (L1). Balance $2,470
          • May - Rent non-payment notice sent (N4). Balance $2,300
          • February through April - Partial or late rent
          • January - Rent on time 💪


          2015 

          • December - real tenants moved it: a couple with two young children. Rent $1,450.
          • October to end of November - Previous owner stayed as our first tenant for two months while she was looking for a new home. We agreed to a discounted rent of $900. At the time, we had several other projects under way and we were running around like headless chicken, so getting partial rent immediately after closing was very helpful.
          • Purchased in October.