Another month, another cash flow report! As I’ve mentioned many times before, I always look forward to writing up this report. 2013 was a very successful year of investing, and I’m greatly looking forward to building up the rental portfolio even further in 2014.
Last month, I dished out $350 worth of gift cards to tenants to show my appreciation for their timely payments throughout the year. In general, I approach real estate investing as something that can be mutually beneficial to both parties. As a landlord, it’s my responsibility to provide my tenants a quality place to live at an affordable price. If things go wrong, I need to get the issue fixed as quickly as possible. And it needs to be done right.
In return, I expect each tenant to pay on time and take good care of the property. I typically perform a home inspection once each year for my local properties. I still need to ask and find out what my out-of-state PM’s do. For the most part, things have been going well, and I’m comfortable with rewarding good behavior. $350/year is a small price to pay to help safeguard against vacancy. Hopefully the tenants appreciate the gesture and want to continue living in my properties for awhile.
With that said, here’s the report for January:
Rental Property #1: Bay Area
Rental Property #1 continues to perform. I was able to collect rent on time this month and there were no maintenance costs. Bills this month were purely due to PITI and HOA. As such, I was able to operate at maximum potential for this month. Total net cash flow collected was $479.82.
Rental Property #2: Bay Area
Similar to Rental Property #1, this property also continues to perform well. Rent was collected on time and there were no issues that popped up this month. The only change for this month was the increase in HOA dues. HOA at this community was already extremely expensive, and rates went up another $12.00 this year. HOA dues are now $318/month. Accounting for that adjustment, this rental also operated at its new maximum potential, cash flowing $348.92.
Rental Property #3: Chicago
Rental Property #3’s performance is still divided. The first floor tenant continues to pay on time, so there are no issues there. On the other hand, we have the second floor tenant, who hasn’t made a payment since October of last year. Yup, another month, and another non-payment from her again.
At this point, you’re probably wondering why I haven’t started the eviction process… Actually, we came very close to starting… My PM sent out a final notice in January, and had attorneys at the ready to start the eviction process. After about five days or so, the PM informed me that the tenant’s mother phoned her and asked the PM if she could make the repayments for her daughter. The tenant’s mom said she would send a check out in early February, repaying all of the debt and bringing the tenant’s balance back to $0.
Honestly, I don’t have very high hopes of collecting the missed rent. And I do believe we will proceed with the eviction process in February. However, since I am collecting 92% of the rent from Section 8, I’m in a better position to be patient. If the above scenario doesn’t manifest, then I will be done playing games. At that point, it will be about principle, and I will want her out of there. But we’ll see…
Total cash flow for Chicago came out to be $775.34.
Rental Property #4: Indianapolis
Rental Property #4 has been performing well, and this was another smooth month. Rent was paid on time, and there were no expenses outside of PITI and the 10% PM fee. Also, I did receive an annual bill from HOA this month. I elected to pay it all at once, but for accounting purposes, I will partition out that payment over an entire year. The HOA bill was $150, or $12.50/month. All in all, I was able to collect $518.18 this month.
Summary
The four properties are performing well and I just need to resolve the tenant situation with the second floor tenant in Chicago. Total cash flow this month for all properties came out to be $2,122.26. Alright, now we’re cooking, and finally over the $2,000/month barrier!
In order to achieve that, though, each property had to be firing on all cylinders. So, although it is nice to hit that mark, I’m not going to make too big a deal out of it. With rental properties, it’s inevitable that repairs and vacancies will eventually happen. That’s why my goal for this year is to get to $3,000/month in net cash flow. Gotta keep creating more breathing room for myself. I’m thrilled with the progress thus far, but still have a lot of work to do before I can confidently say I’ve reached early FI…
Good work in January – I really enjoy following your progress as you get closer and closer to your $3k/month goal!
Have you considered putting together some sort of beginner’s guide for real estate investing? Maybe your story about how you got started and things to watch out for to help true beginners? I’d be interested in that.
Matt,
Thanks! Yes, I definitely have plans on writing up some beginner guides and I really, really need to re-write the “Key Terms” guide. I’ve learned a lot since I first started, so I need to update some things.
Actually, I have an entire series planned… I just gotta get to it and start writing!
All the best!
Awesome and congratulations for breaking through the $2k per month barrier! It will only be a matter of time when you are pushing $3k a month!
Out of curiosity, but are you plans for accounting for maintenance expenses. Say your roof needs to be replaced on the house in Chicago, how do you plan on reflecting that in your cash flow statement? Push it through in the month it occurs? Perhaps showing a monthly “maintenance allowance” is another option?
writing2reality, Thanks! That’s a great question, and right now I’ve decided to leave out vacancy/maintenance when calculating the net cash flow each month. Reason being is that stuff is so unpredictable, and everyone will use different numbers for reserves. I’d prefer to just lay out the numbers, as is. For big ticket repairs, I’ll probably just absorb the hit on each cash flow statement, and not spread it out throughout the year. My thought is to just partition the items that are actually recurring payments I need to make. A roof repair should only be a one time thing… for… Read more »
I’ve been reviewing your property cash-flow and your cash-on-cash returns for the Bay Area properties is a fraction of the Midwest properties, which is to be expected. Did you purchase the Bay Area properties to geographically hedge yourself? The low taxes and returns in Indy make me want to buy up the whole city. 🙂
Dave,
Yes, the Midwest properties are currently cash flowing better than my Bay Area properties. However, The Bay Area, in general, does provide other securities, namely it’s easier to find qualified tenants there and demand is extremely high.
So, it’s a trade off, which is why I want to diversify my holdings. I gotta say the Bay Area properties have had tremendous price appreciation as well.
In the long run, I’ll figure out what works best.
Cheers!
Please get rid of your tenant that is not paying rent. And get rid of the PM for letting this go so long. As I recall, she is a section 8 tenant. Send a letter to the Section 8 office, and that should help. There are also many social services that can help her pay. Imagine what your life would be like with most of your tenants in this low caliber range. This is a common Section 8 tenant behavior, along with having a felon boyfriend moving in. Plan on 10% of rents for maintenance, and 5% for vacancy. Also… Read more »
Eric, Thanks for the comment and insights. Yes, the current delinquent tenant is Section 8, and I am giving her one last shot to make things right. If she doesn’t come through, I will evict her. The only reason I’ve remained patient for this long is b/c of the high subsidy I’m getting from Section 8. Otherwise, there’s no way I would let this stretch out for so long. Yes, I agree my own time is money… the cash flow numbers are presented as is. I’m not making any claims that they are true representations of ROI… any vacancy or… Read more »
So inspiring to read this, and educational, too. Thanks for your guidance and I’m looking forward to following in your path here. Cheers!
Done by Forty,
Thanks! Glad the updates are useful. Best of luck to you on your own endeavors!
Take care!
What great numbers here. Almost all the properties firing at full efficiency. While rental #3 isn’t collecting full rent, since it’s section 8 that’s great for you because you’re still cash flowing some ridiculous numbers from there. $700+ per month is incredible. I thought HOAs were bad here in Texas but $318 per month is crazy. All in all a great month on the cash flow side. When is #5 expected to close?
JC,
Yeah, this month was successful and all properties were clicking. The Section 8 subsidy definitely cushions the blow of the non-paying tenant. If she doesn’t pay next month, she’ll be out. I need to find a reliable, stable tenant.
I was pretty bummed out about the HOA increase, but hopefully I’ll be able to raise rents in another year or two.
Rental #5 should close early next week. That would be my best guess right now.
All the best!
Pretty solid cash flow on all 4 properties. If you haven’t written about it yet, I’d be interested in reading how you manage your out of town properties. Finding trustworthy PM’s etc…
Jay,
I use turnkey companies for my out of state rentals. These sellers have the property management already in place. They serve as a one stop shop to make buying easy for the passive investor…
Hope that helps. I recently did a post on turnkey companies if you wanted to find out more.
Cheers!
How did you find those turnkey situations?
Evan,
There are a few major players in each market. If you ask around, you’ll probably stumble on the same names. In my own situation, once I knew who they were, I made a trip out there to meet the local teams.
You can send me a PM if you want more info.
Cheers!
You probably already know this but you can get “landlord” insurance to protect against abandonment or eviction: http://www.aonrentprotect.com/sites/Rent/Pages/coverage-details.aspx From running some numbers, it doesn’t look like it makes any sense for the section 8 housing since the rent is subsidized but for your others rentals, I think it may. Since most of your Chicago rents if not all are less than $1200, annual premium per unit per year is $250. If you purchase this policy, you’re deductible is first month’s lost rent, but they do cover the cost of eviction and 6 months lost rent. It seems like most evictions… Read more »
Dave, Glad you brought that up. It’s funny b/c I actually do have AON protection for my first floor tenant. Like you said, Section 8 covers so much for the second tenant, it isn’t really necessary. I’m glad I haven’t had to use it yet. Also, I do remember seeing a post about AON rent on Bigger Pockets about a landlord who had to resort to it b/c a few of his turnkeys weren’t working out. I think it really helped him out a lot, so I’m very open to this type of policy moving forward. I’ll have to do… Read more »
Is there a plan to deleverage? Using a year’s worth of $2k could go a long way to knocking off the smaller mortgages and thus getting you closer to your $3K goal.
Evan,
Yes, I will deleverage over time. I’m still in the accumulation phase, though, so the immediate plans are to acquire more rentals and use more leverage.
Leverage increases my cash on cash returns, which will help me get to $3000/month quicker than if I were to try to pay down principal on my other rentals.
Cheers!
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