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Rental property ownership - Year 1 results




We've officially owned our first rental property for over a year! Since hitting this milestone, it seemed a good time to reflect on how it has been going.

When we made the purchase, this is what I initially projected for costs/revenue per month:
Rent: 1225

PITI: 570 (PITI: principal, interest, taxes, insurance)
Maint: 120 (estimated at ~1.5% of purchase price)
Management: 123 (I'm self-managing currently, so I pay this to myself to manage. But it's based on 10% of the gross rents, which is about what we'd pay an outside company.)
Lawn: 80
Vacancy: 123 (estimated gaps in tenancy, 10%)

Monthly cash flow: 209; 2,508/year. We have around 19,000 cash invested, which makes the cash on cash return 13.2%.

First, the bad news is in 2016, we were cash flow negative $321.78 overall  for the year (did not include any tax benefits or principal pay-down in this calculation). This is mostly because I included the cost of the appraisal and home inspection in the first year numbers (~1,000), if I had amortized them over the first few years of ownership, we’d have been positive a little bit. We also had 9 weeks of vacancy. First because we bought the property at the end of May right before I had a work trip and then two of us were on vacation so we couldn’t effectively market it right away. We lost almost 4 weeks because of this. Second, we were asking too high of rent for the area at first. It took us a little while to find the right price where it was snapped up.

The first lease is up at the end of July and I can happily report that our tenants have said they will stay. We like them, they’re low maintenance and have paid on time every month. We approached them at about 60 days before the end of the lease to see if they wanted to stay or not. We’re not raising the rent this year because rent really hasn’t gone up in the area and it would be a big PITA if they decide to move out since our wedding is at the beginning of September, so we’ve got a lot going on in August. Next year we’ll look at it again.

We’ve had a few maintenance items, so it hasn't been all roses! The first was the washing machine drain was thoroughly blocked. We tried to clean it ourselves, had a local handyman come snake it and then finally had roto-rooter come out. After the handyman came it seemed ok until our tenants moved in and tried to do more than one load of laundry in a row. Now we have a roof leak that we just got estimates to repair but it will probably suck up our maintenance budget for the year. We might have budgeted too low for maintenance issues when we were looking to purchase, so this is something we'll need to look at in the future.

We both feel really good about the purchase and are so happy we made it! It is amazing how quickly money accumulates in the rental’s account even with the mortgage, insurance, taxes and other expenses coming out and us not really cash-flowing too much. Seriously, I’m amazed by it. The maintenance funds are accruing there of course for later use and our management fees paid to ourselves and the budgeted cash flow.

At the present time we’re not planning to buy another rental because we’re paying for most our own wedding in September ($$$ - we should’ve eloped!). Our original plan was to buy a new house for us to live in, and turn out current two bedroom townhouse into rental #2 but since I didn’t have a clue what made a good rental when I bought it, only a vague idea that I’d do that with it in the future, at the current rents it would only break-even. So we’ve agreed to stay put for 2-3 more years and get another planned rental first than either rent or sell this one depending on the markets at that time. I am also toying with the idea of getting my own RE license starting next spring, so maybe by the time I’ve finished that we’ll have rebuilt our war chest sufficiently to start looking for #2.

We'll see how it goes! The experiment continues.

photo credit: woodleywonderworks bailout - it's the homeowners in that are in distress via photopin (license)

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