What Is a Problem Property?

The Real Cost of Holding a Problem Property

By David Kim

A “problem property” is rarely just about the building. It is about what that building is doing to your life, your finances, and your stress level. Every week I talk to owners who have been hanging on to a property for years, hoping things will somehow work themselves out. Most of the time, that delay ends up costing them more than they realize.

Let’s break down what a problem property really is, and what it is costing you over time.

What Is a “Problem Property”

When people hear “problem property,” they usually think about a house that is falling apart. That is part of it but not the whole picture.

“Problem properties are definitely any property with squatters, non performing properties, tenants that are missing payments or not paying at all, properties in disrepair, inherited properties that people do not want, buyer damaged houses, lots of land, properties that do not meet code requirements.”

In other words, a problem property is any property that has become a problem in your life.

I look at it this way:

“Problem properties” is an all encompassing term for the seller’s situation. The properties are not really the problem. What is a problem is whatever bad thing is happening in that seller’s situation or life.

Most owners in these situations are not bad landlords or irresponsible people. As I tell sellers all the time:

“People are typically victims of circumstance. It is not necessarily anyone’s fault. It is just the cards that you are dealt in that situation and what are you going to do about it.”

My job is to give people options so they do not feel backed into a corner.

How Holding a Problem Property Too Long Eats Into Your Equity

One of the most common patterns I see is someone living in a house for a long time without updating it in a strategic way.

Usually, if you hold on to a property for a long time and you do not update it, it becomes dated and major things in the house need to be updated. Maybe it is the plumbing. Maybe it is the electrical.

On the flip side, over updating is just as bad. If you hold a property for a long time, and you update it too much, and you spend too much money on your house – you will never get your money back.

People will call me and say “I put 80,000 dollars into my house. Every year I put 30,000 into it. What are you saying that you cannot give me half a million dollars?”

The hard truth is that real estate does not reward every dollar you put in. Nobody cares that you got custom cabinetry done or Italian marble done if you live in a neighborhood where the average house is a quarter million dollars. If somebody wanted those things, they would buy a multi-million dollar home.”

That can be painful to hear, but it is better than pretending the math works when it does not.

Monthly Costs You Forget when Holding a Problem Property

When people think about the cost of a problem property, they think about big repairs. They forget about the monthly drag. Surprise repairs are one part of it. A surprise bill is when a pipe bursts or when in the middle of winter the heat goes out.

If you have tenants, those surprises come with extra pain. It is even worse if you have tenants because they are not going to pay you, if the heat does not work in the winter. They are not going to pay you if the AC does not work in the summer. They are not going to pay you when the water is not hot or not cold.

On top of that, you have regular monthly costs:

• Property taxes
• Insurance
• Mortgage payment
• Interest on the mortgage
• Electric and gas
• Water, trash, and basic maintenance

Most owners are so used to paying these bills that they stop seeing them.

The true cost of selling your home on the market or working with a wholesaler unknowingly is that whatever your monthly holding cost is, multiply it by how many months that you are taking to sell it. Also add on top all the closing costs associated with that property. That is your true cost. The moment you decide to sell, you should start counting those holding costs as part of the cost of selling.

Big Repairs that Snowball Over Time with Problem Properties

The major items that hurt people the most when they wait are usually the same ones: the roof, the AC, the heating, the HVAC, the windows, flooring, kitchens, bathrooms. Anything major in the house. I often talk to owners who say, “Yeah, it is a nice house. It is just not renovated. Maybe we renovated it 15 years ago. Everything is in great condition though.”

Then they see a fully renovated house down the street sell for a high number and expect to get close to the same. The problem is, if I take their house and strip everything to get it to that same level, the cost is much higher than they expect.

Updating a dated house that is in good condition costs the same as updating a house that is pretty much down to the studs. It is the same cost, the same amount of work.

Buyers will factor all of that into their offers. The longer you wait without addressing those big items, the more of your equity gets eaten up by the repairs the next person has to do.

Emotional and Mental Load: Feeling Trapped in a Problem Property

We did not get to talk through all of the emotional questions in detail, but I can tell you what I see over and over. Owners of problem properties often experience these emotions:

• Embarrassed or ashamed of the condition
• Guilty toward family or tenants
• Anxious every time the phone rings or a bill arrives

With one landlord I worked with recently, the emotion was very clear. For seven, eight months, you are dealing with this problem every single day, and it is costing you so much money. Whether it is out of pride or ego or misinformation or lack of education, whatever it is – it is a relief when someone says, “You are good. You can walk away from this now.”

That feeling of relief is the most common thing I hear after closing a tough deal.

Warning Signs It Is Time to Stop Holding a Problem Property

People usually know deep down when it is time to stop holding onto a problem property. When you make the decision that you are not going to renovate it yourself, you know it. If you are honest with yourself:

• You are not going to do the work
• You do not want to manage contractors
• You do not want to go through another eviction
• You are tired of calls from the city or tenants

Then it is time to get started on a plan to exit. If you are not going to do the work and you want someone else to do it, then you have to get started quickly. Things are going to happen. Closings will get extended. Buyers are going to back out. It is going to take longer than you think to get the most amount of money you can. So you might as well cut your losses early. You will save more money in the end.

Waiting rarely makes these situations better. It usually just makes the hole deeper.

A Real Property Story: The Oak Park Two Flat

One of the clearest examples of this was a two flat in Oak Park. The owner was a landlord who thought he could handle the eviction process himself. On paper, if you Google it, eviction looks simple. Google how long does it take to do an eviction, and it says a month or two months.

Reality is different. It does not take into account that tenants can dodge the eviction. Tenants can make appeals in court and extend it. Here is what happened in this case:

• The property sat on the market for months.
• Deals kept falling through. One buyer passed away. Another lost financing. Another did not fully qualify.
• Meanwhile, a squatter moved into the upstairs unit.
• The landlord was trying to move out of state and needed everything wrapped up in two weeks.

By the time he came to us, he was exhausted. We agreed to buy the property for less than what it was listed at on the market, but we gave him very favorable terms. We covered certain costs and moved quickly so he could finally be done.

We closed in two weeks. The seller sold for less than what the property was listed for on the market, but that is because we gave very favorable terms to the seller, and we had to take care of some costs that we incurred to move very quickly.

After closing, the squatter and all the headaches were our problem, not his. When we purchased it, we inherited the squatter. They got their money and now it is our problem. We are used to it. We just have to budget to fix it in the spring. These are things that we budget for.

When we told him he was free to walk away and move on with his life, the main word he used was “relief.”

That is the real payoff for selling a problem property. It is not just the check. It is the weight that finally comes off your shoulders.

Quality, Speed, and Price: You Can Only Pick Two for Your Property

There is a simple rule I repeat to almost every homeowner I talk to. For any company you work with, you can have two of these three things. There is quality, speed, or price. But you can only have two of the three, and you have to choose.

In real estate, this is even more true:

• If you want top price and high quality work, it will not be fast.
• If you want speed and a high quality buyer, the price has to reflect the cost of moving quickly.
• If you want top price and speed, you are usually being promised something that cannot hold up.

It is still surprising that on every call we have with homeowners, it seems like we have to explain that – because they want all three. But you can only have two. It is not because we are mean or bullies or trying to make money. It is because of the way the money hashes out. Once you accept that, it becomes much easier to make a clear decision.

The First Step If You Have a Problem Property

If you have been holding onto a property that is stressing you out, the first step is simple:

Decide if you are truly willing to renovate and manage it yourself. 

If the honest answer is no, start talking to people about your options. Compare:

• What will you realistically net if you keep it, fix it, and sell later?
• What will you net if you sell as-is to a cash buyer with clear, transparent terms?

Run the numbers with your property holding costs and your realistic timeline. Most people are shocked when they see how much they are spending to hang on.

My goal when I talk to sellers is not to talk them into anything. It is to help them see clearly what the property is costing them financially and emotionally, so they can choose what is best for their life.

If you reach the point where you are ready to stop feeling trapped by a property, there are solutions. You just need someone who will lay out the truth and give you options that actually match your situation.