After several years of basic maintenance, we got slammed with multiple expenses at our Delridge rental. And spoiler alert – it’s the unsexy things that are the most expensive. Below is a cautionary tale of what we went through and how we will prepare for these unforeseen rental expenses in the future.
There had been some lingering issues for a few years:
- Some plumbing issues – Downstairs tenant would report toilet back ups. We would call a plumber, they would fix it, and then eight months later it would always happen again.
- Dampness in basement – We live in Seattle, and basements get damp. A prior tenant had reported condensation on their shoes. We suspected a faulty condenser in the ductless mini split system caused it.
But beyond plumber visits, nothing had come to a head… until late 2020.
In late 2020, we called our HVAC repair folks to replace the circuit board on the condenser. Things seemed to be working again. But when new tenants moved in, they said that one of the units was not working. After at least four visits from HVAC repair, we learned why – prior owners installed the wrong communication wire, which prevented the entire system from working at the same time. We could replace the wires for a few thousand dollars, but we would likely need to replace the entire system in a year or so. If the prior owner cut corners with the communication wire, it’s likely they cut corners elsewhere too. We decided to replace both systems, and then we waited 8 months for the parts to show up in the supply chain.
Shortly after we realized we had to replace the entire system, the tenants called up with another issue – they saw a tail in one of the head units! We had never had issues with rodents before, but their presence did not surprise me as the house is on a green belt. There had also been increased residential rodent sightings throughout the city; mice that would normally feed off sources of food at restaurants and parks were moving to houses. The rodent issue lasted for months, as the tenants reported sounds throughout the apartment. We eventually sealed all the entries and got the issue under control.
During the summer, the lower tenants reported a large amount of water entering their bathroom. After one plumber inspected for six minutes and told us we’d have to replace an entire bathtub, we called a new plumber for a second opinion. This one found a faulty p-trap from the upstairs bath, and we replaced the p-trap, overflow, and remove and replace wet drywall. Not cheap… but cheaper than replacing the tub. Finally, something straightforward that we could fix easily!
Then, the toilet backed up. This time we called the same plumber that helped with the p-trap. They removed the toilet and snaked the drain… and pulled up lots of roots. Again, this did not surprise me… the house is on a green belt. But I did not realize that we lacked access to the drain, so we had to add that access and re-line the sewer 88 feet to the street. There were breaks and roots the entire length. This was an $18,000 repair, our biggest of the year.
We were not prepared for these unforeseen rental expenses. Every month I set a small amount aside for vacancy rate (used to cover holding expenses between tenants) and maintenance (used to pay for small repairs during and after tenants), but I had not budgeted for large capital expenses. I had to do something quickly to avoid costly debt.
How we financed the repairs
Fortunately, we had just refinanced our house. I knew we had accumulated quite a bit of equity, so I was able to quickly secure a HELOC with our bank at a low interest rate. This HELOC lasts for 10 years, and we can repay loans on it over 15 years. Interest expense on the HELOC is also tax deductible. I obtained a $100,000 HELOC to cover our 2021 capital expenses, plus others that may come up in the coming years. We have enough rental income to cover the payments.
I am also setting aside an additional amount into a CapEx fund for future repairs. Since we have this HELOC payment, this amount is small for now – only $250 a month. But as I pay that debt off I plan to increase to $500 or more per month. My goal is to get the account to $10,000 as soon as possible, ideally $20,000. That will be enough to cover unforeseen rental expenses without going into debt.
