Sometimes I think I go too far in warning prospective newbie investors about the potential downsides of owning rental property, but articles like this one in todays Austin Statesman remind me that stern warnings are in fact appropriate. To be clear, I am a happy real estate investor and have helped many, many investors successfully buy, lease and manage rental homes in Austin, but one never knows when the nightmare may begin. It can happen to any investor at any time. Normally, it’s a bad tenant causing problems, or prolonged vacancy, or a major repair problem or condition with the property, but other unexpected events can happen as well. People who are not financially, mentally and emotionally ready for the bad times should just stay out of real estate investing and stick to the stock market.
Today’s article discusses how the almost constant rain during June and July has been eroding back yards of homes that back to creeks and streams in Austin. This has left one investor with a major problem. The article states:
Tuan Nguyen bought the duplex on Spring Meadow Road two months ago, hoping to fix up the neglected property that abuts a tributary of Williamson Creek and turn it into a rental property by the end of the year.
But after this summer’s heavy rains, he’s watched the creek swallow most of the backyard.
“The fence is gone: It slid into the creek, and it took everything else with it,” Nguyen said as he kneeled on the ground where the eroding creek bank comes to within a couple of feet of the duplex. “I’ll never be able to rent the property like this; it just keeps getting bigger.”
And, as the article continues, we can add another reason we keep buyers out of the clay soil of East Austin:
“East of I-35 is where we are seeing the brunt of the erosion,” said Mike Kelly, manager of the Austin Watershed Protection and Development Review Department’s stormwater treatment and stream restoration division. “There is not much bedrock, which is less erodible, but rather more Blackland Prairie soil and silt.”
Back to the duplex the investor bought:
Nguyen said the disappearing soil has left a large crack in the duplex’s foundation.
“If they don’t start (the work) soon, the building may collapse,” he said. “I have a lot at stake.”
Kelly said crews plan to start building a temporary 200-foot rock wall behind Nguyen’s property on Monday, a project that will cost about $50,000.
When evaluating candidate properties for investment, it’s important to avoid situations and conditions that should be red flags. The article states that, before the erosion, the creek came within 7 feet of this duplex in the back yard. That’s a property I would advise an investor to walk away from without any further consideration, no matter how well priced.
First, 7 feet of back yard is too small. Second, we know that a creek directly behind a property in East Austin is going to pose potential flooding and erosion problems, not to mention mesquitos. Finally, the SE Austin neighborhood where this property is located does not attract quality tenants, so even after the erosion problems are cured, a duplex like this will be a source of constant and never-ending tenant problems and high turnover. We would never have let one of our buyers purchase this property.
See the full Austin Statesman article here.