Water is a Real Estate Investor’s Worst Enemy | Building the Empire

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In this episode, we have three water disasters that show why water is a real estate investor’s worst enemy.  

The “Building the Empire” series tells you the week to week details about the real wins and losses from my growing real estate empire.  Today’s story is a loss.

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I’ve always loved water. 

Let me correct myself – I’ve always loved looking at water.  Maybe drinking it too.  But ever since I’ve become a real estate investor, I’ve realized that it’s my worst enemy.  The very thought of it flowing through the walls of my rental properties fills me with fear.  I shudder when I think about it flowing down drainage pipes underneath the floorboards.  If I hear a drip, I can’t sleep until I find the source.

Why?  Because water is a real estate investor’s worst enemy.  It has the singular power to cause thousands of dollars worth of damage in seconds.  

The past couple of months have brought not one, not two, but three water disasters that together will probably cost over $10,000.  

It all started during a cold snap in Indianapolis…

The case of the cold water pipes

One of the problems of owning a house in the midwest is the winters.  Although this may shock my readers from southern California, the winter temperature in many parts of our country can fall well below freezing.  (I know, scary.)

And as you might recall from physics, water has a very unusual property – it expands when frozen.  (This is why ice floats.)  When you combine this phenomenon with water pipes, you’ve got a recipe for disaster.  

You may have guessed the first disaster by now, but here it is:  a cold winter night froze the water pipes in one of our Indianapolis duplexes.  The frozen water in the pipe burst the metal pipe under the house and started pouring thousands of gallons of water underneath the house.  

Luckily, the tenants notified my property manager quickly, and they shut off the water main before the flood damaged the foundation.  Luckily, none of the actual interior of the house was damaged from the water.  

With the water off, the duplex wasn’t habitable, so we paid for the tenants to stay in a hotel until we were able to line up a plumber to fix the water pipe.

Cold water pipes part deux

There’s a saying that you might have heard: “When it rains, it pours.”  Another water saying… how distasteful.  If one broken pipe wasn’t enough, we got word the very next night that the same water pipe had frozen AGAIN!

This only saving grace this time was the situation was noticed soon enough that my propery manager was able to shut off the water before the pipe burst.  

This time, the plumber recommended that we sheath the pipes with insulation and plug up some holes around the crawlspace.  These two interventions will hopefully prevent this sad situation from happening again.

The bills for this freezing pipe issue totalled around $1600:

• Original burst pipe: $220
• Bill for tenant accommodations: $600
• Second frozen pipe, insulation, and mortar repair: $780

Water and Poop

If there is one redeeming quality about water, it’s that it’s pretty useful for sanitation.  It’s pretty essential for washing away dirt and flushing away poop.  The problem for real estate investors is that the water has to go somewhere after it’s done its job of sanitation.  

For example, after you wash your sink, the water goes down the drain pipe under the sink.  (A common place of leakage, by the way.)  After you flush your toilet, the waste water goes down the waste pipes until it meets with all the other outflow pipes in your house’s main sewer line.

The main sewer line is the main pipe that leads away from your house to join up with the municipal sewer. This line suffers from three common issues:  clogging, root intrusion, and breakage.  

These issues are often intertwined, and recently took down the waste system at one of our apartment buildings in Indianapolis.  

The basement and the sewer line

It started small: last week, a tenant in our 8 unit apartment building noticed some sewage backing up into the basement.  We got a sewer scope ($299), and we noticed a blockage in the main sewer line running from the building to the street.

This sewer line is the original clay pipe from the construction of the building, and therefore is about 100 years old.  

We got two quotes on a fix, and they were:

1. Hydrojet the sewer line:  $1062
2. Snake the sewer line:  $275

We considered the options. A hydrojet is more thorough, but more costly. We decided to snake the line.  If we ran into another issue down the line, our plan was to do a formal hydrojet at that point.  

Our property manager agreed with the plan and arranged the pipe snake.

Unfortunately, during this work, the clay pipe broke and all the sewage backed up into the basement even more.  

Given that the sewer line interfaces with the city sewage system, we apparently need approval from the city to move forward with the fix, which will be a replacement of the sewer line.  

Given our experience with prior sewer line repairs, we expect this fix to be around $10,000+.  We’re still trying to find a plumbing company willing to take on the job.

Conclusion

So you can see why water is a real estate investor’s worst enemy.  It’s essential for a rental property to function, but it can easily cost you thousands of dollars overnight.  

In fact, plumbing related issues have been the most expensive and common type of problems we’ve encountered with our rental portfolio in Indianapolis.  

I think a big reason for this is our style of real estate investing, which has been to find run down properties and fix them up.  

In many cases, we’ve avoided full replacement of the plumbing due to cost.  This saves money early on and has allowed us to scale our portfolio faster, but we’re starting to really see the cost of this approach.  It’s going to be interesting looking at our real return and cash flow data when we take all these repair costs into account.  

It makes me feel better to consider some of these start-up costs, as they hopefully won’t recur regularly after we fix the causative issues.

–TDD

Do you agree that water is a real estate investor’s worst enemy? If not, what is? Comment below!

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