I wrote a couple months ago about our first long-term rental property, and I promised to provide updates every six months or so to give an idea of how the investment is going and what we’re learning. It’s now been six months seen the purchase of that property, so I thought I’d provide an update…
Keep in mind that this data is only for part of a year, so the numbers aren’t very meaningful (for example, I’ve paid annual tax bill in that six months but the amount paid represents 12 months of payments). But, since I plan to provide updates over the long term, I’ll put the numbers down here for future reference…
Here are the highlights of the past six months:
- Tenants moved in just over six months ago (February 23).
- Property is being managed by a professional property management firm, so I’ve been mostly hands-off, other than getting my monthly direct deposits and having to take a phone call here and there and dealing with one maintenance issue. The investment has been nearly completely passive so far.
- Tenants pay $1450/month in rent — so far, it appears that the rent has been paid by the 3rd of the month each and every month.
- The one maintenance issue was with the HVAC system. A blower motor went bad and the freon in the condenser was low. The repair cost more than I was expecting, and had I known the price upfront (which I approved without seeing the invoice), I would have had my own HVAC guy do the repair. But, it was nice that I didn’t have to deal with anything.
Fortunately, that’s all there is to mention…it’s been a very unexciting few months…which I’m very happy about…
Here are the numbers since the tenant has moved in…
Keep in mind that these are actual expenses — they are not pro-rated…so, for example, if I don’t list an insurance cost, that’s because I didn’t have a bill during this period, not that I didn’t have insurance on the house… 🙂
As a reminder, I spent $61K on the purchase and $18K on getting it into service (total asset value of $79,374). We don’t currently have a loan against this one, though that’s a consideration in the next 6 months.
The few things that skew the returns down for this short period of time are the one month of rental income I paid the PM, the one year of property taxes I paid, the one year of State personal property taxes paid and the utility bill for the period prior to the tenant moving in.
I expect the 12-month numbers to be more reflective of longer-term ROI trends.
Hey J,
Before I comment, the link to our original rental article in the first paragraph is broken. It links to this page.
Thanks for sharing your numbers. Looks like a solid rental purchase based on those numbers. Almost a “50 x rent” deal. Nice work.
I was curious about your property management arrangement. Did you pay a fee for the first month’s rent AND monthly fees? That seemed higher than I would expect. Maybe I missed something.
Sounds like this rental is basically a dream come true! Tenants that pay rent on time? And (presumably) aren’t causing problems? And the property itself hasn’t had any huge issues? You lucky dog 🙂
That’s how to do it. Keep up the good work. Soon youll be at 10,000,000
Sounds really good so far … hope the tenants remain legit and awesome!
This is actually a great idea on how will you manage your real estate property
If I’m doing my math correctly, is your monthly property management fee 20% of rent?
Great Blog, very informative. Thanks.
Chuck,
PM fees are 8% of gross rent collected. The reason for the larger number in the P&L is that the PM company takes one month of rent when they place a tenant. So, I paid a full month’s rent the first month ($1450) plus 8% of collected rent every subsequent month ($116).
Oh ok, that makes more sense, thanks for the explanation. Although, a whole month’s rent for tenant placement is crazy! Would you say the level of service has matched the cost of a manager? I’d be interested to read about your experience with the management company itself in a separate blog post, would be very helpful for me to learn since I’m working on a property management startup myself!
Hey Chuck,
Happy to write a post about my PM experience…
In general though, one month’s rent is pretty standard in the industry for tenant placement. While I think it’s horrible (there is little incentive to find a tenant who will stay long-term), this is how most of the big companies do it. Other than that though, I’ve been very happy with the PM company. The 8% of gross rent is on the lower-side (10% is standard), so that is good. And they have some good contractor relationships (and processes) for when there are maintenance issues.
The tenant they found has been great (paid on time 10 months in a row), and it appears that they’ll be renewing for a second year.
Overall, I’m very happy with the PM company…
Awesome site, J.
Quick question.
I see that your net income is a little over 2 grand.
I was wondering if you are saving any of that income for future expenses?
In my calculations, I always try to add an additional line into the expense section for “future expenses” or a line to bank some cash incase of an emergency.
Is this wrong? Should I not be adding this line item in?
Just curious to get your take on this.
So glad to see the blog “back in business”. Have been following you the past 4 years. So happy that you’ve found a good rental property with tenants. My husband and I did the same thing in 2011, but sold it last year (hindsight,should’ve kept it). Good luck getting the mortgage on the property, I’m sure you know about the “seasoning” from the banks. The property we currently own is in it’s 8th month of “seasoning” before we can apply for a loan on the new appraised value. Looking forward to catching up with your endeavors! 🙂
Hey Scott,
I always keep money aside for maintenance, capex and emergencies for my rentals. I don’t generally factor those funds into the financials, as the funds might come from property income, they might come from the overall business, they might come from another business or worst-case, they might come from my personal funds. Regardless, those funds generally don’t factor into any of the financial calculations I care about, so even though the money is generally sitting somewhere, I don’t really think about it as part of the property equation.
Good ole HVAC system. You can always count on it to make your life more interesting. Thanks for the article. Love these down to earth posts.
Thanks for showing us your update. This will definitely help a lot of people in the same industry you have to just keep the numbers going. I think you are in the right track and doing a great job here? Hopefully to see more numbers in your next update.
Ah yes HVAC, truly the bane of my existence. I’m sorry it seems to be the bane of yours as well, at least with this property.
I love how you meticulously track the numbers. There is a lesson to be learned here.
Seems like a great project. If you can foresee a large Capital expenditure in the future (1-2 years). i.e. New HVAC or roof, would you fix that before you rent it out?
My thinking would be better to fix it now. Rather have to save more rent percent and realize less actual profit.
Hi Adam,
Yes, always get the big CapEx items out of the way before you rent. Better to do with it while the house is vacant than to have to deal with when there’s a problem in the middle of the night and the tenant is freaking out…
Hi J Scott,
Always enjoy reading your blogs, post, etc.
As I have been looking for 3 or 4 I’m finding they are hard to come by. My concern is when 1 person moves out that’s 50% of my income lost. I owned a 2 family once ( kept it when I moved out but did not buy as an investor). What are your thoughts on 2 families vs 3 families? Should I change my goals from 3 or 4 units to 2 units (many more to choose from).
Thanks for your thoughts.
Henry
Hey Henry,
I don’t have a particular preference for 2-unit or 3-unit or 4-unit. It actually really depends on the area. In some areas, there are very few 3- and 4-unit properties, so it’s either duplexes or 5+ apartments. In other areas, 4-units are very prevalent, but they tend to be in tougher neighborhoods. And then in some other areas, 4-units are common, even in nicer neighborhoods. So, I would go by whatever is common in your area. The more common, the more likely you are to easily get tenants (as tenants will be accustomed to those types of buildings).
Great job! Buy and hold is definitely the way to go to earn passive income to retire with.
$5,200 per door is solid J. Great work man! Not to mention your cash our refi is going to be north of $70,000 due to the value increase after your rehab. Most of your money back in 12 months (to do it again if you want).
Well done!