LESSONS LEARNED IN REAL ESTATE & PROPERTY MANAGEMENT – How to manage & sell a dump.

5 Star Review

Keith Klassen is smart and professional.  No matter what the circumstances, he manages his attitude and stays solution oriented.  Because of this, we came up with great solutions together. 

Mari Paul (Buyer, Seller, Property Management Client)

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HOW TO HANDLE SOME OF THE ROAD BUMPS THAT GO ALONG WITH MANAGING AND SELLING A RUN-DOWN PROPERTY (Part 1)

Many income/investment properties are purchased with the idea in mind that they will be fixed up and improved over time.  This is a great idea… let the property pay for itself.  However, this doesn’t always happen, especially when the property is just breaking even or not cash flowing as expected.  Perhaps this also points to a reality check when figuring out expenses, deferred maintenance, and a realistic slush funds for unexpected costs at the time of purchase – by the way, this is something I enjoy helping newer investors figure out. When that big ticket item comes up, like when a new roof is needed, or rotting widows need replacement, it could be time to encourage an owner to sell, or for you to walk away from the property management position.  I have found that owners who are not able to maintain their properties to a minimum standard can put the property manager’s neck on the line (i.e., lawsuit waiting to happen), or just create an unmanageable situation.

Here’s a story of how the house of cards can fall over.  The tenant calls to say that several of the old windows won’t stay up any longer – of course the owner was going to install new windows as a first priority.  The tenant says that it’d be nice to fix them, but they understand and it’s not a big deal because they can just put a stick or a book in the window to hold it up.  The owner says, “Oh good, because I don’t have the money to fix it anyway.”  Several months later the tenant calls to say that the window slammed shut and the glass cracked.  The owners says, “Can they survive with a cracked glass for a while?  … Until we get new windows, or just until I get some money together to fix it?  Maybe they can put some tape on the glass?”  The tenant is not super happy, but puts some tape on the window.  Six months later the tenant says, “I’m starting to notice some mildew, or maybe mold in the bathroom where the window was cracked.”  As it turns out, the roof was on its last leg, the windows were rotting, and many other items had been on a list to renovate over time…

The owner ended up having to give the tenants notice to move and give them free rent due to the mold (and pray there were no health issues as a result).  When the owner finally decided to sell after doing some hodge-podge fix-its, they still took a big loss on the sales price due to all the put-off maintenance issue that later became health issues.

While I had to threaten to cancel our management agreement due to the owner’s inability to take action to make the needed repairs, I ended up being able to navigate us through the fog of it all without things escalating and ending in litigation.  Eventually I listed, sold the property, and eventually wash my hands of the situation.  Remember, distressed properties a lot of times equal distressed owners.  If I had to do it again, I would have taken action faster, and not hung around as long, cancelling the management agreement or encouraging the tenant move-out and sell sooner.  What happens when everything starts sliding down hill, the property manager gets taken down by all parties (who used to love you and high five you for being so great).  This also obviously will kill the listing/sale opportunity. Fortunately on this one, I still walked away with a high five.

Have you had any mold or deferred maintenance scares, whether as an landlord, seller, or agent/PM?

Cheers to learning new lessons,

Keith Klassen, Real Estate Broker – 916.595.7900

Specializing in residential sales and property management