August 2014 Cash Flow Statement

by FI Fighter on September 13, 2014

in Cash Flow

Leverage

I was of the country for most of August, so this was a really good trial run to see how passive the rental properties really are! Since I was too busy out having fun, I basically entrusted everything to my fabulous tenants in the Bay Area, and to my property managers out-of-state. Let’s see how the properties performed this month…

The results are presented “as is” for each month. If something breaks and I need to spend money on repairs, those charges will show up as an expense for the corresponding property. If there are no issues, no expenses are reported. So, although I do set aside a portion of the net income for vacancy and maintenance reserves (which will inevitably happen), I don’t account for them in this report.

Here’s the report for August:

August_2014_Cash_Flow

Rental Property #1: Bay Area

Rental Property #1 was solid again this month, and rent was collected prior to my trip to Japan. I didn’t receive any text messages or e-mails from the tenant while I was away, so I’m hopeful things are still going smoothly here. This tenant is consistently awesome, and although cash flow isn’t spectacular, the peace of mind (lack of headaches) really make this unit a winner in my book.

Total cash flow for the month was $447.67.

Rental Property #2: Bay Area

Similar to Rental Property #1, this property also keeps on performing. Rent was also collected on time, prior to my vacation. No complaints here!

Total cash flow for the month was $344.76.

Rental Property #3: Chicago

The first floor tenant (market rate) is spectacular, and basically on par with my Bay Area tenants. Rent payment is a bit more sporadic here, however, and I don’t always collect early in beginning of the month. The good news is that she has never missed a month’s payment. Sometimes she pays around the middle of the month, but this tenant does take the responsibility to pay the $25 late fee, which she did again this month. I do wish she would consistently pay in the beginning of the month, though, as it really isn’t in my interest to nickel and dime her.

The second floor tenant (Section 8) again chipped in $200 this month in rent. She is being served an eviction notice, which I paid $922 for last month. Maybe she thinks these drip payments will make a difference and help her stay? I’m not sure how long this process will drag out, but her move-out date was set by the courts to be on October 28. I am hoping to secure a much better tenant, next time around.

When running cash flow numbers, I originally budgeted 10% of monthly cash flow towards vacancy reserves. I will learn from this eviction experience whether or not that percentage is adequate or not. My guess is that 10% is insufficient (especially for out-of-state investing in Cook County), and I’m anticipating the entire eviction costing me a lot more than that… More clarity (and answers) will come as I navigate through this eviction process.

Rental Property #3 is back to being cash flow positive! 🙂

Total cash flow this month for Chicago came out to be $739.69.

Rental Property #4: Indianapolis

Rental Property #4 has stabilized and I’ve been able to collect rent on time consistently since the new tenant moved in. August was a great month, and uneventful. Just the way I like it!

Total cash flow this month for Indianapolis came out to be $518.18.

Rental Property #5: Chicago

The first floor tenant is Section 8, and her portion is only $110. Section 8 covers $1,098, or the majority of the rent. This tenant doesn’t pay consistently each and every month, but she did pitch in $100 this month, which is nice. She basically paid off her balance in full last month, so I am very glad she is back on track. Her monthly tenant portion is $110, but I am not going to squabble over a measly $10. Consistent payments are all that I am asking for…

The second floor tenants are market, and they have been consistently excellent. Like my other market tenant, they always pay each month, but not necessarily on time either. The good news is that they also do take responsibility seriously and pay the $25 late fee.

One thing I’m observing with these Midwest properties is that rent collection on the first of the month (or even 4th) is not a slam dunk… Even with great market rate tenants, I’m seeing this as a common trend… rent keeps arriving in the middle of the month. This is something that takes some getting used to, especially for someone who lives in and invests in the Bay Area. In contrast, my Bay Area tenants have never paid later than the 5th of each month… I have never collected a late rent fee in the Bay Area…

But in the end, as long the tenants pay off their balance in full each and every month, that’s all that really matters. Actually, I’ve collected quite a bit of rent in the form of late fees, which does pad the cash flow numbers. Still, I would gladly give that up to be able to collect rent at the beginning of the month. I actually have a policy of giving my out-of-state tenants a $20 discount each month if rent is collected before the 4th. Sadly, not a single tenant has taken me up on that offer…

Anyway, cash flow for Rental Property #5 was spectacular again this month.

After all expenses, total cash flow this month was $1,215.34.

Summary

Total cash flow for August came out to be $3,265.64. I was able to clear $3,000 this month, which was a relief after failing to break that mark last month (eviction and attorney fees chewed up $922 of cash flow). Overall, things are going well, although I will need a few more months to stabilize unit 2 in Rental Property #3.

With that said, it is interesting to note that I haven’t increased my cash flow since I closed on Rental Property #5 back in late February of this year. It’s been awhile since I’ve invested for cash flow… Now that we are getting closer to the end of the year, I can say that I don’t anticipate making any more cash flow moves this year to help boost the semi-passive/passive income… Instead, I’ve actually been going off on a tangent, focusing more on appreciation plays… Lots of details to follow soon on this topic.

My goals for the remainder of the year will be to stabilize my existing units, and to focus on rebuilding cash reserves. Also, since I start a new job in a few weeks, most of my focus and attention will be concentrated on getting settled in.

Still, the end goal of early FI will always depend on cash flow (gotta pay the bills somehow), so that’s something that can never be fully ignored! I’ve been on a break, but hopefully we can come up with some new strategies to help increase the cash flow in 2015!

Fight on!

{ 12 comments… read them below or add one }

1 No Nonsense LandlordNo Gravatar September 13, 2014 at 5:57 pm

I just posted my cash flow and rent collections. 23 for 24 rents deposited in the bank by 9/2, and the last one on the 5th. I have one vacancy.

It’s all about tenant quality, nothing else. Income will tell you the tenants ability to pay, credit score will tell you the tenants ability to pay.

Upgrade your tenants and your life will be easier and more profitable.

Reply

2 No Nonsense LandlordNo Gravatar September 13, 2014 at 6:02 pm

Correction: It’s all about tenant quality, nothing else. Income will tell you the tenants ABILITY to pay, credit score will tell you the tenants DESIRE to pay.

Reply

3 FI FighterNo Gravatar September 14, 2014 at 12:46 pm

Eric,

Very impressive, as always. You have your rent collection system in place, and it would be tough for any landlord to beat those numbers.

I agree there, tenant quality is of paramount importance. I would say the PM follows directly after that, but since you self-manage, you already have that taken care of.

I have great tenants in the Bay, and a few in Chicago, so I’m very reluctant to increase rents. They do make my life much, much easier.

All the best!

Reply

4 writing2realityNo Gravatar September 13, 2014 at 7:52 pm

First off, congratulations on another great month of collecting over $3k of positive cash flow. It is interesting that you are focusing more on appreciation plays given your current proximity to FI. Do you think this is the result of your new commitment to staying in the work force longer than originally anticipated? Given your new signing bonus and increased salary, I would image you would be able to generate enough capital over the next few months to pick up another property and get you that much closer to the passive income required. Either way you go, you’ve set yourself up for success in the long-term, and I hope you continue to experience that success.

Reply

5 FI FighterNo Gravatar September 14, 2014 at 12:53 pm

writing2reality,

Thanks! Yes, definitely the shift towards appreciation has a lot to do with me securing a new job offer and possibly working for a few more years…

The never raging debate between cash flow vs. appreciation will never have a victor as far as I’m concerned because I easily see the merits of both sides.

As is often stated, cash flow pays the bills and appreciation makes you really wealthy. Depending on your own goals and timelines, you do what is best for your own situation.

If I wanted to retire soon (my original plan), then the focus has to be on cash flow! Since my plan is being pushed back slightly further out in the distance, and I have decent cash flow, I’m making more of a push for appreciation again.

It might also be worth noting that I live in the Bay Area. The real estate market here is quite different from most parts of the country… Appreciation is very potent, and has made a lot of folks tremendously wealthy. To miss out on it entirely would be a shame… Granted, the barrier to entry into the Bay Area housing market is steep, but I don’t have an excuse b/c I have the means to do so… And when I don’t, I’ve been finding more creative ways (such as partnerships) to help win deals.

In the end, I believe in diversification and balancing out risks… But my mentality has definitely shifted towards appreciation, both in real estate and stocks.

Cheers!

Reply

6 A Frugal Family's JourneyNo Gravatar September 13, 2014 at 9:51 pm

Love seeing all that green on your cash flow statement. Well done FI Fighter. Great seeing fellow bloggers success in their personal journey!

Keep it up…Best wishes! AFFJ

Reply

7 FI FighterNo Gravatar September 14, 2014 at 12:58 pm

AFFJ,

Thanks! I love seeing each property in the green as well. 🙂

All the best to you on your journey as well!

Take care!

Reply

8 Retire Before DadNo Gravatar September 14, 2014 at 11:46 am

FIF,
Do you use a rent automation service? I’ve been using Rentmatic since I started renting my place and in three years I’ve never had a late payment. It takes the bank a few business days to process it, but I know on the first of the month whether or not the payment is good. Simplifies my life quite a bit. Only costs $4 a month (per unit).
-RBD

Reply

9 FI FighterNo Gravatar September 14, 2014 at 1:02 pm

RBD,

Unfortunately, I don’t have rent automation setup. My Bay Area tenants always pay on time, no I let them do it on there own.

The out of state rentals, I rely on the PM to collect rent. They have forms of automated payments setup in their online systems, but it’s up to the tenant to enroll in them. For whatever reason, we haven’t been able to get anyone on board with auto-pay…

Now that you mention it, I should talk to my PM and see if I can make this a requirement for the next tenant who moves into unit 2 of #3.

Glad it’s been working well for you! I’m going to forward the rentmatic link to my PMs, since we need to do a better job of on-time rent collection!

Take care!

Reply

10 SamNo Gravatar September 14, 2014 at 12:17 pm

Crossing the $3k figure is great!

Do you really escrow your property taxes every month?

Reply

11 Special Agent DividendNo Gravatar September 14, 2014 at 12:48 pm

Some great numbers there and hopefully the new tenant will be better next time around after the current one is evicted. I have one investment property that keeps me busy and always nervous on the positive cash flow, so I can’t imagine how you do it with so many.

Reply

12 FI FighterNo Gravatar September 14, 2014 at 1:03 pm

Sam,

Thanks! Yes, I escrow the taxes and insurance for the out of state properties. I don’t have it setup locally, but I don’t see a reason not to… do you?

Cheers!

Reply

Leave a Comment

 

{ 4 trackbacks }

Previous post:

Next post:

Copyright © 2012 FI Fighter