This is what a "fix" looks like when it really isn't a fix.

I love how he refers to this as a death spiral, because it absolutely is.

Cash is tight, so the property maintenance isn't done, which makes cash even more tight.

But the reality is that this is a massive opportunity. Either for an observant owner or an investor who does proper due diligence.

The breadcrumbs to the issue were all there - it is just a question of who is willing to take the time to follow them.

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Ken Roble

Toured a distressed deal last week. Opened a water heater closet and found an invention.

The tank was running, so somebody ran a hose off it into the washer drain box. Twelve dollars. Eight minutes. Problem relocated.

I did the math in the car.

Call it half a gallon a minute. That is 21,600 gallons a month, and Houston water and sewer on a commercial meter puts that past $350. Then the tank reheats every drop it loses, around the clock, about 2,600 kWh on the vacant unit meter. Another $400.

Roughly $800 a month. From one closet.

A new tank runs $550. Another $250 to set it.

Eight hundred dollars.

The leak costs exactly what the fix costs. Every thirty days.

It was already in the T12. Water high, vacant electric high.

That guy who ran the hose is out of money and out of help. He has no PO, no second tech, and a queue that grows faster than he closes it. So he solved it in eight minutes and moved on.

This is the death spiral from the inside. No cash for the tank, so you run a hose. The hose raises the bill. The bill eats the cash. Next month there is less money for the next tank, and there is always a next tank.

Now price it. Nine thousand a year of burn on one unit.

Open the closets on your next tour.



Source

 

And it compounds through resident retention and online reviews. Prospective residents are reading Google and ApartmentRatings before they ever tour, and a string of recent reviews mentioning maintenance delays or broken amenities kills conversion on the front end too. So you get hit twice: existing residents leaving faster, and new leads converting slower. That's the real death spiral, not just cash tightening, it's occupancy and reputation tightening at the same time.

Rich, great point.

So true. I focus on distressed and troubled deals, so I see crazy stuff like this all the time. It’s easy to blame the maintenance team, but often they’re understaffed, underfunded, and just trying to keep the few remaining residents from leaving. Sometimes that means robbing parts, appliances, and equipment from vacant units just to keep occupied units running. By the time you see the mess, the real failure usually started much further up the chain.

Not certain, but when the plumber winterizes and drains the system, they'll run a hose off that valve, usually out the window, but if this is nearby, they use it to drain it until the property sells. But dude forgot his hose. he will cuss himself next property when he goes to the truck for it

“Was the tank feed inadvertently left on?”

Eloy Rosario It was just running, which makes no sense!!

Ken Doble
Even if this was an oversight, it represents a significant breakdown in follow-up and operational oversight.
I experienced a similar incident in one of my new-construction properties. During the process of bleeding the heating system, one of the petcocks was inadvertently left open. Compounding the issue, the superintendent was not conducting the required daily inspections. As a result, the problem was not identified until the rental team entered a newly leased unit to ensure it was ready for occupancy. At that point, they discovered water damage in four units, along with significant mold growth. Upon further investigation, it was determined that three additional units had also sustained damage.
In total, four units were affected as a result of an issue that should have been identified and addressed through routine daily inspections and proper follow-up.
This situation highlights the importance of consistent site inspections, timely follow-up, and clear accountability at the supervision level. What may initially appear to be a minor oversight can quickly escalate into a significant operational, financial, and property-management issue when proper controls are not in place.

Eloy Rosario Interesting, so it's not just distressed or old deals, but brand new ones that face similar issues. I guess human nature doesn't change with asset type , if you don't inspect it and have high standards, don't be surprised when bad things show up.