It’s that time of the month again.
No not like that… the first week of the month, time to provide an update on how little work I did on my portfolio.
I felt silly calling it a portfolio when I had just two properties. Three? Totes legit.
First Some Thoughts
I was previously hesitant to give monthly updates because usually nothing much happens and it is too zoomed in to get any feel for how the numbers work out long term.
I finally caved. My goal is to show you how little time I typically spend with my passive approach to rental property investing.
And hopefully the numbers are compelling, but I don’t really worry about them too much. I have a decades-long approach to rental property investing, so any individual month isn’t that vital.
Not to mention the cash flow numbers are just one part of the overall return. Twice a year I go through all the numbers: appreciation, tax benefits, mortgage pay down, and more.
See my latest deep dive into the numbers: 6 Months, $9596 More Dollars – Rental Property Portfolio Update
3 bed 2.5 bath, 2050 square feet
Purchased in 2011 for $81.5k, cash out refi in 2017, rent $1000 (goes to $1050 in 2018)
The tenant has been in the property for over 6 years, as long as I have owned it. That’s the good news. The bad news is they are typically 2-6 weeks behind on rent at any given time.
This month they are getting caught back up – moving from 6 weeks behind to around 2. Let’s see if they get all the way caught up.
I received deposits in my checking account of $810 and $500. That’s after the expense of $90 for property management. And before $760 PITI (so high because I did a cash out refinance). So this month my cash flow was $550 on this rental property.
How long did it take to earn this money? 10 minutes. I made a quick phone call to the property manager between the deposits to find out the payment plan they worked out (paying $600 every 2 weeks until caught up).
3 bed 2 bath, 1450 square feet
Purchased in 2014 for $93k, rent $1020
The rent of $1020 was collected. Property management is 10%, so $102. The plumber had to come out to replace the flapper on a leaking toilet, which came to $103. Then $560 goes to PITI. So in September cash flow was $255.
I spent about 20 minutes on this property because a new lease was signed and I went through the paperwork to find out the details.
This tenant started a 2 year lease in March 2016. It really did not start out well with the new tenant. After 10 months, we were averaging $225 a month in repairs. Ouch. It seemed like this tenant called about any minor thing.
It has been 10 months since then with minimal repairs. I won’t go through now and add it up, but just a few hundred total including this month’s toilet fix.
Replacing a tenant is expensive. On this property the 2016 tenant turnover cost $2400 between fees and the property being vacant for a little while.
So considering this tenant stabilized with fewer maintenance calls, I wanted her to stay. This property management company is on top of it – they already approached the tenant to sign a new lease before it is up in March 2018.
The tenant signed a new 2 year lease with modest rent increases of $1035 the first year and $1045 the second year. For re-upping for 2 years the tenant receives $150 off their March 2018 rent.
The rent increase is nice, but the big win here is avoiding the need to find a new tenant, which costs $1.5-2.5k and gives back a huge chunk of your hard earned cash flow.
5 bed 2 bath, 2200 square feet
Purchased in 2017 for $105k, rent $1100 (pending)
This is the latest property – I closed on September 22nd.
How much time did I spent on the closing in September? Maybe 2 and a half hours. I received the appraisal and went through it to understand the comps used. I received the closing package by email and read through all the documents before the notary came over to have me sign.
Since the closing I have spent maybe 15 minutes. I called a few times to get an update on the placement of the tenant. They outsource it to someone else, which once again makes communication tricky.
Things are in motion, but honestly not off to a great start with this new property management company. My phone calls typically go to voicemail and my messages typically aren’t returned. I’m beginning to think email will work best with them.
How about the cash flow? Nothing yet. It will hopefully rent at $1100 soon with 8% going to the property manager and $598 for PITI. The first mortgage payment isn’t due until November 1st though, so no expenses yet.
$805 in 3 hours and 15 Minutes
Total cash flow in September was $805 against 3 hours and 15 minutes spent.
Obvious caveats apply like setting aside money for maintenance, repairs, tenant turnover, etc. There will be negative months.
Most of the time was spent on the closing. Once property #3 is rented, I should hopefully spend only about an hour a month keeping an eye on all three.
The Snowball is Gaining Mass
On my email list I discuss how I think of my portfolio as a snowball rolling down the hill.
With each turn the snowball gathers more mass – the bigger it is, the more it gains – exponential growth. It starts slowly at first though, barely noticeable.
After the refi on property #1 and purchase of property #3, I feel like I have turned a corner on the exponential growth of my rental portfolio.
By reinvesting the cash flow, my properties can feed the buying of more properties, which increases the cash flow and speeds up the ability to buy the next property.
I still have some proceeds from the cash out refinance and I just cashflowed $805 in one month. Pretty soon I’ll have enough for the next rental property!