Rental Income 2016-03

Gross Revenue : +$4,895

Duplex Unit#1: $1,375.

Duplex Unit#2: $1,320

House: $2,200 – Finally!!!….Our tenants moved in mid month.  They paid first month up front, so next months rent will only be a half month.  But still, we are getting money in the door.

Expenses : -$4,831

Duplex: -$2,374

This breaks down to $2,167 in mortgages, and $207 for water and trash.  We had 2 water payments hit this month, $101, and $106.  (Just the luck of the draw in terms of how the calendar hit.)

If you notice, our escrow readjusted (happens annually) and raised our monthly payment from $1,886 to $2,167 or +281.

House: -$2,457

Our House payment was $1,976 split between a first and second mortgage. If you notice, our escrow readjusted (happens annually) and raised our monthly payment from $1,512 to $1,976 or +464.

A note, I know this seems like a huge increase and it was, but about $300/m of the increase is due to the payback of an escrow shortage.  When we bought this house, it had been totally redone.  The property taxes went way up and left a shortage in the escrow account.  Instead of paying for the escrow shortage up front, we decided to let the monthly payment go up for a year.

The reality is this $300/m or $3,600/yr was really property tax from 2015 when my wife and I lived there and I  would expect a $300/m decrease in 2017.

During the month we spent, $120 to clean up the yard and get it ready for the new tenants, $160 to fix a gate and $15 more on cleaning supplies.

On a side note, those magic erase sponges are fantastic.  We were able to use them to clean up some white trim around our windows and doors.  Because they worked so well, we didn’t have to repaint the trim saving a ton of time (and money).

We also spent $186 on electric, water and trash during the month.  These expenses go away in the future as the tenant will be paying for them going forward.

 

Monthly Profit : $64

Duplex: $321  – Satisfied…but holy cow that increase in property taxes hurts.

House: -$257 – not satisfied…yet

Overall we are getting there, next month will be tight because we only get a half month rent out of our house.  I would expect things to really kick in during May.

Since I began these updates the cash flow has been mediocre to poor.  A lot of things have happened, we had a lot of expenses that were incurred as we moved out of the house and got it ready to rent.  To be fair we would have had the exact same expenses had we been getting it ready to sell.

I sort of discount the $300/M that we are paying back to the escrow account, it really is not a rental expense per say, rather the increased escrow is a property tax expense we incurred while we lived there that is now being paid by our tenants.

Most bloggers don’t mention this, by the time you clean up the property, make small repairs, paint, have property taxes readjusted etc, that it seems to take a year or so before a property starts to make money.

It gets better, rents typically go up a little each year, the property taxes have had their initial jump, any major repairs have been completed etc.  You have changed the locks, fixed the paint colors etc.

Also don’t forget, the way the properties are leveraged (the types of loans on the property) play a huge part in the cash flow.  For instance we have PMI on the duplex (approx $60/Month), and have a second mortgage on the house.  ($220/Month).  Those expenses will go away as we pay down the loans.

But its not just cash flow….

We put down total cash of about $63K to buy the duplex (2013), $57.8K+$4K in repairs (foundation, fence, minor plumbing etc)  …$4,500 of the $63K was stupid tax.

On the house we invested $19.8K (2014) of cash to close.

Conservatively we have about $110K in unrealized price appreciation between the two properties (after closing costs) if we chose to sell. About $60K from the duplex, and $50K from the house.  So 132% ROI since 2013.

Our rentals are in trendy areas of Dallas (Lower Greenville and the Bishop Arts district).  These are booming neighborhoods with a ton of development .  I think they will continue to appreciate.  The duplex is a likely target for developers, there are probably 10 or 15 high end (350-550K/unit) condo/town home developments within a 6-8 block radius of our place.  To the right developer, the property might be worth an additional $30-50K or so above what we are calling the conservative number.

Plus just by paying the payments, we have a monthly reduction of $700/month on the principal owed between the two properties.  And all of that is being paid by the tenants.

If you are thinking about getting into the rental game.  Have additional savings above and beyond the down payment and closing costs that you can use for unanticipated expenses.

So overall I am very pleased with what we have done so far with our properties, we have bought houses that we could live in initially.  Then move on and rent out behind us.

 

(disclaimer: I am pulling the data out of our Quicken system. I may on occasion make category revisions, therefore the month by month updates may not tie exactly to the year to date or year end totals.)

Net Worth 2016-03

Total Net Worth in March: $405,389 ($91,563) – Incredibly satisfied

March was the best month we have ever had.  The stock market did well, our tenants moved in.

During the month we broke the $400K barrier for the first time, 21 months since we broke the $300K barrier and 4 months since we broke the $310K barrier.  I know we kinda ‘cheated; to get here since I picked this month to update the value of our properties, but even without the increase in asset values, we had a really good month.

Assets: +$78,242 –Incredibly satisfied

After holding off for some time, I decided that it was more appropriate to occasionally update the value of our real estate holdings.

I came to this conclusion for a few reasons.  There was getting to be a significant discrepancy between the values of our real estate and the values listed on the Net Worth updates.

More importantly, we are making decisions to buy/spend/rehab/invest etc on real estate, the results both good and bad are best reflected by keeping the values at least somewhat close to market.  For instance we might decide to sell a property if the value has gone way up.  Maybe we rehab a house based on our value vs the after repair value.  Maybe we accept low cash flow if we are getting 10% year over year appreciation vs selling if the market is flat.

I think real estate valuations are very subjective, and I don’t want to get into monthly updates since places like Zillow etc are so volatile. I plan on making a couple of updates a year, and I am trying to make it so the value listed would roughly approximate the amount we would take home after a sale.

The Duplex’s value went up from $308K to $340K in our latest Net Worth Estimate, similar structures in the area have actually sold in the $350K-$390K range.  Zillow currently has an estimate of $385K so I don’t think that $340 is overly aggressive.

I have increased the value on the rental house from $230K to $280K.  This house is in a booming neighborhood in Dallas.  Our real estate agent estimated that its current value would be about $300K.  So the $280K number I believe to be fairly conservative.

I  left the price of our current house the same as we just bought it in Nov of this year and a few months ago, I already increased the value a little based on some rehab work we did to the house.

I used KBB to update the value of our autos and reduced the car value by $616, and the SUV by $555.

Net Cash Accounts: (-$4,208) –Not satisfied

Our cash balances were down quite a bit.  My wife’s kids came to town, and we spent some money shopping, eating out etc.  So our credit card balances (which are paid in full every month) went up.

In addition we paid everything we could on our personal loan so the overall balances in this area were negative.

Net Cash Rental Accounts: +$965  – Satisfied

We were up this month on our rentals.  Finally have someone living in our old house offset by some final expenses we took on to get the house ready to rent.

Retirement accounts: +$9,708  – Incredibly satisfied

A great month in our investment accounts. My 401K account had its best month ever.  My IRA did well as Apple is starting to come to life. The wife’s 401K did well as she is entirely in a Vanguard S&P fund.

Honestly in this area we just need to continue investing, and to continue increasing our contributions over time.

Liabilities: +$6,857  – Incredibly satisfied

A great month, we paid off the personal loan (+5,761) we took out to buy/rehab the house we bought in Nov.  I absolutely hated taken out this loan, it went against just about everything my wife and I are trying to do.  Being able to get it paid off is a great relief, it lowers our fixed costs by $310/month.

Next month we will turn our focus to the 401 loan, we owe $19.2K, I would like to see us have it paid off by Aug.

The remaining improvement (approx +1,100) was just due to regular amortization on our other loans.

How did you do in March?