Credit: jen on flickr
One of the biggest fears we had going into the landlord game was: what happens when big things go wrong with the house? Of course, we also had the fear that the house wouldn’t rent, but that is pretty well understood. You know how much money you’d be on the hook for each month, so at least that’s not an unknown number. And you can lower your asking price to help get renters. But the boogey-man hanging out there was for major-malfunctions. So we have homeowner’s insurance, which should cover catastrophic damage. And we bought a home warranty, which should cover a lot of the other things. And we crossed our fingers.
So of course, the air conditioner crapped out. The backstory here is that this was a very cheap builder-grade AC unit. In the 10 years we lived in the house, most of our neighbors had serious air-conditioning problems, and most of them had the units replaced, to the tune of multi-thousands of dollars. We also had plenty of AC problems, but never replaced the entire unit. Over the years, we replaced the compressor, replaced the evaporator coil, and fixed a host of other issues. When the system stopped cooling for our tenants, I’d finally had enough. The problem was a leak in the evaporator coil, again. I finally decided I was tired of replacing some part of the system every year, and was ready to replace the whole thing with something better. But how does that work out?
To shorten a long story, the home warranty company was willing to pay for a new evaporator coil, since that was the specific problem. But they weren’t going to foot the bill for a new unit until the whole thing disintegrated. That’s a reasonable position for them to take, and I wasn’t going to change their mind. So I had them just write a check for what a new coil would cost, and I applied that to the cost of a new unit.
All told, I ended up spending around $4000. Our tenants were very understanding, and actually happened to be out of town for part of the replacement time, so it worked out about as well at it could. It was a big financial hit, and mentally disappointing, because it meant we would not turn a profit on the rental house for 2014 (although we should still come out positive over this tenant’s 2-year lease). The day I wrote that check, I was certainly not enthusiastic about being a landlord.
Then I realized the silver lining of the rental business. If I had bitten the bullet and replaced the entire AC system before we moved out of the house, that would’ve been $4000 down a hole. It’s just he cost of home ownership, too bad, so sad.
But since this happened when the house was a rental, that is a $4000 expense, which counts against our rental income. So in this case (if I understand correctly), my 2014 taxes will show a loss on the rental house, which will reduce our total taxes. All things being equal, you’d obviously rather have more profits. But if you have to spend the money, having it come off your tax bill sure does soften the blow.