For those of you reading this in Texas, you know that we just came through some of the coldest weather most of us can recall here at home. I thought I’d let you know how our portfolio fared and what we learned, as I hope this is the worst cold we’ll experience for a very long time.
Those of you further north are laughing at us…we know. Just for perspective, it was way below freezing for days and our infrastructure just isn’t built to withstand that kind of weather. To put it in perspective for those who didn’t have to endure it, we had major power outages for days during the worst of it. There seemed to be no rhyme or reason as to who would lose power and for how long but my house was without power for three days. We are on a well so our pump was out and we had no water. Many areas lost water from local water systems as well. Some fires burned freely without functioning hydrants in the county outside of San Antonio.
I left my family to go do my job as a firefighter and felt torn between caring for my family and serving our community in its’ time of need. Just a quick word of gratitude to my amazing wife who took care of our kids and our small farm of animals throughout the freeze, to include melting snow to make water for horses to drink. It turns out it takes a lot of snow to make a little bit of water. I know, Minnesota, you knew this already.
I guess I should get back to real estate. The houses in our portfolio are all on municipal water systems so we didn’t have to worry about well pumps but many of them lost water service anyway. This was outside of our control so there really wasn’t anything we could do as landlords. We did have three pipes break and one heater fail. The pipes were able to be isolated which limited damage to some small sheetrock repairs, thankfully. The heater was repaired but by then the power was out and the HVAC technician couldn’t test the repair to see if it worked. It didn’t. He came back a couple of days later and made it right.
This house was the worst one for us because this family had a six month old baby in the house with them. We brainstormed what could we do to help them. We first offered to buy them a space heater if they could just pick it up but the stores were all sold out. Then their power went out so it would not have helped anyway. We later offered to pay for a hotel room for them. Also sold out – and most hotels didn’t have power either! We felt helpless and I’m sure they did as well. They have been amazing tenants and we wanted to help them in their time of need but we were also struggling personally. Ultimately they endured the cold as the rest of us did but we were sick over that baby being cold.
We bent our normal rules by letting one neighbor of a tenant perform plumbing repairs that normally would be only allowed by our plumber, but plumbers were hard to come by during and after the freeze and just traveling to get to the houses was dangerous for our contractors. This worked out for an emergency but we will not be changing our policy on this for normal situations.
The whole thing did remind me of things I’ve learned in the fire service. We have policies to help guide decision making and just about the time you think there is a policy for every possible situation, you run into something so weird you know no one has thought of a policy for it. Just as with firefighting, policies are important to a business, whether written or just practiced, but flexibility in unusual times is also critical. Knowing when to do what is right for the people we serve, in real estate or public service, is the first objective. Knowing when to override policies is also important.
Ultimately everyone survived and houses were repaired but these are the times when cash reserves are so important. I wish I had an amount to recommend that you keep on hand for repairs but I don’t. We have always kept some cash in savings for repairs but we also play the odds that repairs will be spread out over the year rather than all at once. We used to keep a certain amount per property but as the number of properties grew, we didn’t keep increasing that amount because we preferred to use that money elsewhere and the cash flow from other properties can help fund the repairs on one property without dipping into reserves when repairs are isolated. All of this to say that our reserves have actually not grown proportionally with our portfolio.
So why not keep a huge pile of cash? Because we’re growing our business and we feel that savings are being eroded by inflation and we expect to experience a lot of future inflation. So we balance the need for growth with the need for reserves. Another source of reserve funds can be lines of credit or other types of easily accessible money. If you dip into these, make sure to replenish the funds before going on a buying spree so that you always have a little “dry powder”.
All in all I would say that we actually were pretty lucky with our outcome from Snowmageddon 2021. Out of 22 units, we only had issues at four. That’s a lot better than I feared. Even so, it is more than we normally have at once. So, by having cash reserves, we were able to afford to make all of the needed repairs and offer hotel rooms without hesitation. This was one bright spot in the midst of a tough week in Texas.
When we started all of this real estate stuff we read books on how to start a real estate business but there aren’t any on how to keep one growing responsibly. There aren’t any on how to best use equity and what amount of leverage is optimal. We’re trying to share our experiences here, as we grow, as a source for what is working and what is not working in our business. We hope that it will save you some missteps and help you see what is working in the current market.
This year got off to a fast start for us and we look forward to sharing more particulars about how we are navigating new acquisitions in 2021 and what we’re learning along the way. Let us know how we can help you to reach your goals and, as always, keep the main thing the main thing!