Biggest Mistakes

Our 13 Biggest Mistakes to 500 Units and How You Can Avoid Them: Part 2

In the previous article, we began to highlight mistakes that Jake and I committed as we embarked on our investment career. We obviously have committed more than 13 mistakes, but we felt that these thirteen errors had the ability to destroy our future and were vital to focus on and try to give a solution to the problem.

We discussed our “nightmare” manager and our unscrupulous mortgage broker in the previous article. In this article, we are going to focus on two more mistakes.

Bed Bugs:

Once you attract bed bugs, it’s extremely difficult – and costly – to eradicate them. One of our apartment complexes that we purchased was being run as a weekly rental and the tenants would use the mattresses and furniture that were in the units.

Although the rental income was higher with weekly rentals, it wasn’t worth the hassle or the bed bug problem that the tenants brought in. The tenant base was extremely transient and our make-ready expenses were higher than the extra income that was generated. We’ve now partnered with a new pest control company that specializes in heat treatment for these evil creatures so we ensure it’s not going to be an issue again regardless of how long our tenants stay.

When you purchase a property, make sure to have the inspector walk through all the units and check to see if there is any bed bug activity or termite activity. If you find instances of bed bugs, try to have the seller take care of the problem, or ask for a repair credit for the expense to get rid of them. Our mistake was not inspecting the furniture before taking over the property.

It is imperative to throw away all bedding if bed bugs are found in the apartment. Contact your pest control team member immediately and have them eliminate the bed bugs. We had a tenant from the property mentioned above sue us because he claimed that the bed bugs in his apartment repeatedly bit him and caused him discomfort. It was his furniture, yet he felt the need to sue us.

Avoid this mistake by inspecting all of the furniture. This lawsuit led to us throw away all old furniture and required tenants to purchase their own mattresses and beds.

Septic Systems:
A septic system is a self-contained sewage plant that’s located on the property. It consists of a tank, which holds the refuse, and leach fields to where excess water flows and eventually dissipates. This type of sewage system is very common in rural parts of the country where running sewer lines can be prohibitively expensive and where the infrastructure is lacking.

The main concern that we encounter with septic systems is that it limits the number of units that it can service. The system occupies a large percentage of the property due to the requirements for the leach field and the expansion fields that are needed if the leach fields fail. Our other concern is whether or not the system is functioning properly when the property is purchased.

We recommend all buyers perform a dye test that will determine if the septic system is working properly. You also have to ask the seller to provide you with a schedule detailing of when the tanks were pumped. On average, a system should be pumped every 6 to 12 months for a rental property, but the only way to determine that is to actually monitor the tank when you first pump it. One telltale sign that the system is not working is if the owner has to pump the tank frequently. This indicates that the leach fields are malfunctioning and the fields aren’t allowing the water to dissipate.

Our first property contained a septic system, and considering it was winter, we didn’t have an opportunity to perform the proper due diligence. There was our mistake. The fields on our property were very old, and we should have foreseen problems, but we were so excited to buy the property that we overlooked this critical element of the investment.

As luck would have it, one portion of the septic system failed one year after we closed on the property. We were forced to dig everything up and build an entirely new leach field. It wasn’t an expense that we were anticipating so early into our investing careers.

Our only other option was to ask the seller to hold some money is escrow once we closed on the property to protect us from a faulty septic system. We could have performed the due diligence in the spring time. If the system needed repair, we could use the money from escrow.

And if the system was functioning properly, then the attorney would disburse the funds from the escrow account. Most sellers will balk at this demand, but if they know the fields are functioning properly, then it should not be an issue.

Task:
Inspect every unit for termite and bed bug activity. Consider hiring a pest control company once you assume ownership of the property. You want to be proactive on your properties and avoid problems before they arise.

Review how often the owner pumps the septic tank. Assess the age and condition of the septic system. If you anticipate problems, discuss receiving a credit from the seller.

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