If you’re planning to buy a rental property as an investment, it could be risky if you don’t have a lot of hands-on experience working with tools.
How do I know this? From experience. I am a guy who has never been particularly good with handy work. I certainly don’t have a lot of experience with it.
My dad was never a handy guy, and the tools in my household growing up consisted basically of an adjustable wrench, a hammer, and a screwdriver. No power tools or anything like that. So I just never got exposed to doing handy work. So you could definitely consider me “green” when it comes to doing DIY projects.
Yet I excitedly went and bought an apartment complex about ten years ago. I was mesmerized by the potential of renters essentially paying for me to own the building. I just loved the thought that as long as I put the cash down up front to buy the building, it will be the tenants who are paying my mortgage.
I’m also a numbers guy. I found an apartment building deal that I really liked, where the numbers looked juicy, and pulled the trigger on buying it. From a numbers-only business perspective, the deal looked great.
The apartment complex I bought was more than 50 years old. I was aware it would need maintenance on an ongoing basis, and the financial reports I looked at accounted for that to some degree when I considered purchasing the building.
But once I got in there and operated it for about six months, I could tell that I was in way over my head. The reason was that I didn’t have any firsthand knowledge about doing repairs or maintenance to the property.
Let me give you an example of why this posed a major problem.
A tenant might come up to me and say their heater isn’t working. Well the heater is connected to a boiler system that connects to the whole building. Since I don’t have any knowledge of how to fix it, I call a company who specializes in servicing these types of systems. They come out and tell me I’m going to need a new $7,000 boiler installed.
Due to my lack of expertise, I simply don’t have a way of knowing if that’s true or not. Am I being given a sales pitch? Or do I truly need a new boiler? I simply don’t have any ground to stand on to make the decision because I have no direct knowledge of doing any sort of repair work related to this.
Here’s another example. There’s a leak coming through the ceiling for one tenant. I call out a roofer to take a look, and they tell me I need an entirely new roof for $24,000. Is that true? I have no idea. I listen to what the guy says and it certainly makes sense to me, but for all I know it’s just a sales pitch.
The list goes on. I ended up re-vamping so many of the property’s features, and it costed me what seemed like a small fortune. There were constantly people telling me about issues with the property, and I constantly had to consult with other professionals who had an incentive to sell me as much as possible. I never knew the truth and it made it very difficult for me financially.
And of course it didn’t help that I could never just handle the fixes myself. That alone could have saved me a bundle of cash. Not that I am suggesting in this article that apartment building owners should do all their own repairs personally, but that it sure helps if you have the ability to so that you can make the call when to just jump in and do it yourself.
I continued to operate the building for several years, and I only had one year that was cash flow positive. Every other year, the issue was that the cost to do repairs was just so high that it made it unprofitable to own the building.
Some might rightfully say that I may have purchased a money pit, and the cash flow issues were more about that than my inexperience with handy work. But even if it’s true that I bought a property with a lot of deferred maintenance, I could have detected that better if I had more DIY experience and I might have been able to avoid the purchase altogether.
So my advice to you: if you are buying an apartment building as an investment, you might want to think carefully about whether you’ll have enough DIY handy experience to be able to operate it profitably.