Cash Flow Statements (2015 Recap)

by FI Fighter on December 9, 2015

in Cash Flow

Leverage

Well, it’s embarrassing for me to see how far behind I have fallen with the Cash Flow statements… Back in April, I was dealing with a vacancy with Rental Property #5… As they so often say, “when it rains, it pours“. Two months later, I experienced an additional vacancy with Rental Property #4…

Unfortunately, it took an extremely long time for me to recoup the security deposit from my previous Indianapolis PM (Rental Property #4), so that really made a mess of things in regards to monthly updates…

I kept waiting, and waiting, and waiting…

Further, I experienced 3 total months of vacancy with Rental Property #4… so all the lawn-mowing, utilities, etc. bills didn’t come home to roost until months later, after the situation had stabilized and I got a new tenant in place…

So, now that we are in December, rather than going back and providing a monthly update for every month, I am going to do my best to summarize the details and put together a string of reports to give readers the full picture view (although condensed) on how things are performing.

You’ll get to see:

  • My worst monthly performance.
  • Typical monthly performances.
  • Optimal monthly performance.

More details to follow below!

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.

The Worst of Times

Here’s the report for June:

June_2015_Cash_Flow

This is what the “worst month” of landlording that I have ever experienced to date looks like! 2/7 vacancies, with the saving grace for cash flow being a fully occupied Rental Property #3.

As you can see above, the maintenance costs to get the unit rent-ready again can also be pretty hefty ($541.75 for Rental Property #5). It hurts even more so because the maintenance comes at a time when the unit is not generating any rent (double whammy)…

To succeed in real estate investing, the ABSOLUTELY MOST IMPORTANT THING you can do is to minimize vacancy as much as possible. This is ESPECIALLY important for landlords who own properties out-of-state, where you have to rely on others to get tasks done.

Also, the true reality of owning properties is that it is essential that a landlord maintain ample maintenance/vacancy reserves each and every month… You just never know when you’ll be needing it!

I realize the results above look TERRIBLE, and they really were dreadful… But, the one bright spot I took from all this was the fact that even in the worst of times, I still somehow managed to pull through above break-even…

Although there are no guarantees that I will never have a NEGATIVE month with my rental properties, the diversification definitely helps to dampen the blow, no doubt!

In the worst of times, I’ll consider it a win if I can manage to pull off some GREEN to the tune of $100/month in net cash flow.

The Best of Times

Here’s the report for October:

Cash_Flow_October_2015

I was able to get Rental Property #5 leased up in the summer, and Rental Property #4 followed suit, with a new tenant moving in September (it dragged longer than anticipated, but I learned a lot from the experience which I will detail later in this report).

By September, we were again firing on all cylinders… The above shows what an “optimal” month looks like when all my units are leased up, everyone is paying rent, and the maintenance items are minimal.

About $2,800/month, best case scenario.

Typical Times

Here’s the report for November:

Cash_Flow_November_2015

As I have mentioned before in past Cash Flow Reports, some of my tenants are Section 8, and they don’t always pay on time… The tenant in Unit #1 of Rental Property #5 eventually does get around to paying, but as is the case right now, she is delinquent for rent payment that was due back in November…

So, this is what I would call a “typical” month where my market rate tenants all pay but I’m still chasing after rent collection from a Section 8 tenant…

About $2,400/month in net cash flow.

Here’s the report for December:

Cash_Flow_December_2015

To err on the side of caution, I would say December’s report is a better reflection of the true state of my rental properties… Here we have some missing rent payments along with some maintenance items and a HEFTY utilities bill (I am responsible for paying water for my duplex units; Rental Property #3 and #5).

Total cash flow of $2,000/month is basically where my target lies…

Rental Property #1: Bay Area

The tenant’s lease expired this past September, but ultimately I decided not to increase rents… Other real estate investors may think I’m crazy, or completely stupid, but I have my own reasons…

The family that lives in this unit does not generate high income… They essentially live paycheck to paycheck, but they have always been outstanding tenants… These fine folks: pay on time, handle their own maintenance issues, and for the most part, leave me alone in peace… since 2012 when I first won the property.

I think there is something to be said for that…

Further, they have two young kids who they are trying to put through school… And from my own background of having to work 4 years in high school, I know how tough times can be when your income doesn’t grow at the rate of inflation to keep up with everything, especially rent…

$2,130/month is chump change for a 3 bedroom unit in the Bay Area… Market rate goes for $2,600/month

So, as an investor, I realize that I am hurting myself here…

But I feel good inside, as cheesy as that sounds… And I can’t seem to put a price tag on that…

Ultimately, I made out like a bandit by winning this unit… Right now, I’m not desperate for the cash either, so I decided to keep rents at the same rate for another year…

Rental Property #2: Bay Area

The tenant who lives here has been in place since May 2013. He is excellent and always pays on time. This time around, I elected to increase rents by $200 back in June.

Market rate is about $2,700/month, so my current rate of $2,350/month is well below market.

Again…

But this unit is located in a fabulous neighborhood. When it comes time to declare early FI, I have no worries about being able to get this unit back up to market rate.

That will boost cash flow TREMENDOUSLY!

Rental Property #3: Chicago

I have the same two tenants as in previous reports — one market rate, and one Section 8. They are both great and always pay their rent, although not always on time.

I have no complaints here, and I hope both tenants stick around for a long time!

Rental Property #4: Indianapolis

My previous tenant paid on time but she left the home in pretty bad shape… The PM and I had to chase down my previous PM to locate the security deposit (apparently they never transferred it over).

This really made a mess of things… Further, it took a lot longer to lease out this unit then I would have liked…

Unfortunately, we weren’t able to obtain the previous $1,075/month rent, and had to lower it to $995/month in order to attract high quality tenants.

Lesson learned… When it comes to vacancy, don’t mess around… Quite frankly, vacancy is the worst experience possible with landlording; it absolutely destroys cash flow…

I would rather lose out on $100/month and get an OUTSTANDING tenant in return than to nitpick for higher rents and have to go through months of vacancy again…

And this time around, unlike before, I have a direct relationship with the tenant (we exchange texts every now and then)… No more messing around, I want somebody good in place for a LONG TIME!

So far, from what I can tell, this family is terrific! They are extremely polite, respectful, and they pay before the 1st each month.

Since this rental property is paid off, as long as I can keep it occupied, it will be a cash cow for me.

Rental Property #5: Chicago

The new tenant here is also market rate, so between Rental Property #3 and #5, I have a 50/50 split between market rate and Section 8.

The Section 8 tenant has been in place almost two years now, and although she pays late, she eventually gets around to paying off her balance.

So far, the new market tenant has been punctual with rent payment of $1,250/month.

We’ll see how things go…

Summary

Point blank, vacancy hurts a lot! My struggles this year with rental properties are 100% attributed to losing months of rental income and having to spend a ton of money on rent-ready repairs and lease-up fees… Although these bumps in the road have been painful, I’ve learned that I have to be way more selective with my out-of-state tenants so that they can match the quality that I have here in the Bay Area… Because if I can manage to pull that feat off, I should be able to go a few years (or more) between vacancies… This will do WONDERS in terms of boosting the monthly cash flow numbers…

What’s my strategy?

Screen tenants myself. Charge below market rent. Interact with tenants and give back to show my appreciation. Address all questions, concerns, and repair items ASAP.

If you want respect, you’ve got to reciprocate respect.

 

It’s well worth the effort.

 

The “worst of times” moments produce about $100/month in cash flow. The “best of times” gets me around $2,800/month. The “regular times” vary between $2,000/month and $2,400/month.

For readers who are new to this journey, please note that my cash flow has diminished this year because I executed two separate cash out refis (Rental Property #1 and Rental Property #2), which allowed me the opportunity to pull out ~$200,000 in funds in exchange for a larger monthly mortgage payment.

And as readers are well aware, I have some BIG plans for that $200,000! 🙂

So, at this point, I guess the fundamental question to ask is this:

“Do I have enough reliable cash flow to declare early FI and retire FOREVER?”

I’m a conservative guy, so I would say…

No.

If we extrapolate these numbers out for a full year… throwing out the “best of times” results.

Let’s say we average 1/3 our time in a given year between:

$100/month

$2,000/month

$2,400/month

 

$1,500/month.

 

My original early FI goal…

 

Would that work stateside? No way.

Overseas? Maybe…

But my own plan is to go overseas for a few years and figure out a way to live off of $1,000/month… Using my current conservative cash flow numbers, I should have a buffer of about $500/month

Of course, being conservative, those numbers still aren’t good enough for me…

So, we’ll need to bring in some reinforcements…

I’ve currently got about $200,000 invested in gold mining stocks and an additional ~$120,000 or so in the bank… Adding in those additional buffers, do I have enough to call it quits tomorrow?

Still no…

No?

In addition to the cash flow and cash buffers, my plan for pretirement (let’s not call it early FI just yet) is to also find a way to work some side hustles online to help generate $50/day, or $250/week, or $1,000/month.

 

In pretirement, I would still like to figure out a way to save and invest… Some habits die hard!

 

Am I ready for pretirement?

 

Yes, I strongly believe that pretirement is just around the corner for me… Just got a few more tasks to wrap up first…

 

Stay tuned and thanks for reading!

 

2015 Cash Flow Summary:

April 2015: $1,315.38

March 2015: $2,117.11

February 2015: $2,056.28

January 2015: $2,758.91

 

2014 Cash Flow Summary:

December 2014: $2,239.59

November 2014: $1,459.84

October 2014: $2,479.99

September 2014: $3,008.02

August 2014: $3,265.64

July 2014: $2,778.24

June 2014: $3,129.87

May 2014: $3,152.58

April 2014: $3,381.28

March 2014: $3,800.20

February 2014: $2,467.62

January 2014: $2,122.26

 

2013 Cash Flow Summary:

December 2013: $1,892.55

November 2013: $1,317.70

October 2013: $2,271.81

September 2013: $1,932.28

{ 15 comments… read them below or add one }

1 Financial SamuraiNo Gravatar December 9, 2015 at 7:38 pm

Thanks for pointing out the highs and lows.

$2k-$2.5k/month ain’t bad at all!
I agree with you on vacancy. I haven’t had one in over 10 years with two properties, but I feel next year migh Be tough if I want to kick out current tenants who are paying $8,800/month. They aren’t taking care of the property like we agreed upon. I have it in their lease that I will be raising the rent to $9,500/month though, so that might be good enough to compensate for their bad behavior.

Reply

2 FI FighterNo Gravatar December 15, 2015 at 7:39 am

Sam,

That’s amazing! And that rent is asinine, lol…

You’re doing incredible things with those properties sir!

Cheers!

Reply

3 alanaNo Gravatar December 9, 2015 at 8:37 pm

Man this is such a welcomed sight, was getting lost there in all the non real estate investing stuff. It’s your personal blog though so it’s all good.

Sorry about the vacancies but nothing too worrisome. Bothersome yes but overall, you’re still headed in the right direction. Keep at it.

Reply

4 FI FighterNo Gravatar December 15, 2015 at 7:41 am

Alana,

Back to basics! REI is probably my favorite investment class… unfortunately, deals are tough to locate in my area so I’ve changed course…

But thanks for the reminder! I really need to write more real estate related posts…

Take care!

Reply

5 Midwestern LandlordNo Gravatar December 9, 2015 at 9:25 pm

Nice update. Vacancies and maintenance / repair expenses are going to happen in the rental business. Just like someone owning a stock cannot expect it to never go down in value from time to time, if you own rental real estate there are going to be months that are not as good as others. The key is to look at it as an opportunity. Sometimes it is an opportunity to find a better tenant, make improvements to the unit, raise rents, etc. I like your strategy of being more involved with your out of state rentals. Because ultimately, no one is going to care more than you about how they perform.

Looking at your property performance, long term it looks like you can get the top end monthly income up to around $3,600/ Mo when you deem it time to get closer to market rent on your Bay area properties. That is pretty good when you take into consideration the money you took out of your properties. Even in June when the cash flow was minimal, the properties still paid for themselves and you made additional money with the principal reductions. Pretty nice to “win” even in a down month.

Reply

6 FI FighterNo Gravatar December 15, 2015 at 7:43 am

Midwestern Landlord,

Definitely, a vacancy is a bummer but it does give a landlord a chance to reflect and make improvements. I try to learn from my mistakes so I can optimize efficiency the next time around.

In regards to rents, yup, I’m not too concerned at this point, but it’s nice to know I can raise if necessary since I’m so far below market. A high ceiling is always welcomed.

Yeah, I’ll take break-even for a worst month anytime… Hopefully these occurrences won’t happen so often.

Take care!

Reply

7 MikeNo Gravatar December 9, 2015 at 10:38 pm

Thanks for this update FIFighter!
Been experiencing similar lows lately, with a massive water bill, CHA Inspections, and other maintenance items.

I wish I had your diversity, but I’m on the sidelines for now.

Happy Holidays!

Reply

8 FI FighterNo Gravatar December 15, 2015 at 7:44 am

Mike,

You bet! Sorry to hear about your struggles as well… Rental property can be a tough business at times…

All the best!

Reply

9 JohnNo Gravatar December 10, 2015 at 4:15 pm

FI, Good to know you decided to Screen tenants yourself. Can you do a post on the topic for future?

Reply

10 FI FighterNo Gravatar December 15, 2015 at 7:39 am

John,

Sure, I’ll try and add one before the end of this year.

Cheers!

Reply

11 No Nonsense LandlordNo Gravatar December 10, 2015 at 7:20 pm

Great update. I will be posting an update soon too. I had a 1.83% vacancy rate, with the average cash flow over $13.5K a month.

Keep up the great work, it will come.

Reply

12 FI FighterNo Gravatar December 15, 2015 at 7:47 am

Eric,

You are a beast! That vacancy rate is phenomenal too.

All the best!

Reply

13 Investment HuntingNo Gravatar January 2, 2016 at 3:47 pm

Hi FI Fighter. Question – Did you find all of these properties yourself or use a turn-key service for the out of state homes?

Reply

14 FI FighterNo Gravatar January 2, 2016 at 7:25 pm

Investment Hunting,

I use turnkey for out of state, and I self manage all local properties.

Cheers!

Reply

15 6PackNo Gravatar October 12, 2016 at 8:54 am

Hello Fi Fighter,

You have a great blog and I appreciate the information you share. I lived in Los Angeles on less then $800 per month fairly easily for over 7 years. That is only $9600 a year and Los Angeles is a very expensive city. Clearly, if you are making $1500-$2400 a month this is more then enough to live on in most places in the US, never mind overseas. Be open to the truth of your situation. You are consumed by greed and fear. Heed this friendly reminder. No amount of money in your bank account will ever make you feel secure. The reason is because money is incapable of creating feelings of security. Only you can feel secure inside yourself. No external force can replace it.

Reply

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