Have you experienced property destruction by one or more of your tenants? One of the downsides of being a landlord is property destruction by tenants. Repairs are often costly and at times too costly to make financial sense. Unfortunately, when tenant damage to property occurs, landlords are often confronted with the dilemma of not being able to rent the property out unless the damage is repaired, but not wanting to invest additional funds into the property for repairs.
There is a logical way to deal with this dilemma. In this post, we’ll discuss the hard facts you need to assess before reaching your decision, as well as options for avoiding costly out-of-pocket repairs. Follow these steps to reach the decision that works best for you.
- Assess the Damage. To understand your true costs associated with the damage, assess both costs of repair/replacement and time for the repairs.
Costs of Repair/Replacement
To get the best assessment, plan on hiring a licensed contractor familiar with renovations. Even if you are handy and plan to do some or all of the work yourself, it is best to get an experienced contractor’s perspective. Get a detailed bid in writing that includes the work involved, materials and labor costs.
Time for Repairs
Don’t overlook the time involved with the needed repair work. The time during which construction is performed means that the property is off the market and is generating no income. Account for the reduction in cash flow during the time the property is off the market. Also consider any expenses you will continue to incur, including taxes, utilities and insurance. Finally, factor in your costs to market the rental, should you decide to put it back on the market.
- Assess Your Finances. Take a long and short-term look at your financial situation. Can you afford to pony up the cash out of pocket to cover the costs of repairs? Calculate the impact that time off the market has on your cash flow. Assess the long-term impact of your decision. Will holding on to the property and spending the extra cash be worth the investment? Are there other investment opportunities available that may yield a better return if you sell?
- Explore Selling Options. Should you decide to sell, understand that not all investors require a home in pristine condition. In fact, many are looking for buying opportunities that require renovations because they have the expertise, resources and CASH to make a quick sale possible. If you understand the market you are in, you may be able to walk away from a cash drain and profit by selling to investors who have the means to pay cash for your property. Markets like Portland, OR, for example, offer the opportunity to sell a Portland home quickly, because of rental demand. In markets like Phoenix and Portland, you can sell your house fast, without the requirement to repair property damage, make a profit and gain money for other investments.
Think through your options before investing in damaged property repairs. There may be a profitable silver lining in the final analysis.
What is your strategy for effectively dealing with damaged rental property?
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