March 2014 Cash Flow Statement

Leverage

Alright, another month and another cash flow report. Rental Property #5 closed in mid-February so I was able to complete my first full month of ownership in March. Adding more income streams to the mix is always fun, and I was very eager to see just how much cash flow seven units would contribute to the bottom line. Right out of the gates, Rental Property #5 was off and running, but unfortunately, some other issues popped up this month. Please see below for more details…

Here’s the report for March:

March_2014_Cash_Flow

Rental Property #1: Bay Area

Rental Property #1 continues to perform at an All-Star level. Another month, and some more cash flow coming in! Not much to report here except the fact that my insurance premium went up a few bucks this month. I paid for the entire year, which works out to $27.75/month. The old premium was $23.83/month.

Total cash flow for the month was $447.67.

Rental Property #2: Bay Area

Similar to Rental Property #1, this property also continues to perform at an All-Star level. I must say, I really did luck out with my two local purchases; I only wish I had the opportunity to buy more. Unfortunately, the market just rebounded too quickly, so I was fortunate enough as is to just be able to acquire two units. Similar to Rental Property #1, the insurance premium went up this month (I use the same insurance company for both properties). The new premium is $25.83/month, which is an increase from $21.42/month. Outside of that, there’s nothing more to report.

Total cash flow for the month was $344.76.

Rental Property #3: Chicago

Rental Property #3 is starting to get better. The first floor tenant is still stellar, like always, and continues to pay rent on time without incident. This tenant is a market rate tenant. Her lease is expiring soon, but I hope she elects to stay… Forever! 🙂

The second floor tenant made two payments this month ($188.00), and is starting to catch up on her rent. She still has a positive balance, but she’s definitely making improvements from before. 🙂 She is a Section 8 tenant, and her monthly rent comes out to be only $94. So, even when she doesn’t pay, it’s not the end of the world… The PM and I are working to get her caught up.

Total cash flow this month for Chicago came out to be $978.14.

Rental Property #4: Indianapolis

A quiet, uneventful (boring) month is EXACTLY the kind of month I’m looking for. When investing is “fun” or “exciting” (see below), it usually means things aren’t going so smoothly…

Rental Property #4 ran into some problems last month, and I almost had to face my first eviction. At the last minute, the tenant decided to show up at the PM office and make rent payment.

I was quite relieved! This month, I was hoping she would get back on track, but it was just not meant to be. The tenant decided to go AWOL again this month, so the PM and I were right back on the eviction trail.

From the PM:

She has been struggling for a while now to stay caught up so I wish I was surprised. She was trying to make it work, but I think she’s just given up. She didn’t provide anything other than that (information). I know it’s difficult for people like you and I to understand how someone could just let that happen without giving a backstory, but that is the case in this situation.

It will take a week or two to have the home in rent ready condition again but we will begin marketing the property immediately. I do not want to nail down a timeframe for you and misspeak, but your rent guarantee will ensure that you will not go without seeing a return. We take the hit on all of these costs to prepare the home for the new resident as well, so trust me when I say that we have tried to prevent this from happening.

Going through an eviction isn’t fun, but it is a good learning experience. I’m actively figuring out what to do to help prevent this from happening again in the future. To be clear, I’m not blaming the PM for this mess (they get this one free pass). However, I do find it necessary for me to put in the time to learn how the entire process of tenant screening works. If I don’t learn from this experience and it happens again in the future, then it’s both our faults. I’m currently working with the PM to setup the screening criteria for the next tenant.

Here’s how the process works:

We use the National Tenant Network to do all of our screenings for new residents and based on their score (which computes together several factors) we either approve, approve with a higher deposit or conditions or reject. We can adjust market rents if that is needed, and I can talk to our leasing team about that if we are seeing a home vacant for more than we like.

I want you to feel confident that you don’t have worry about these things…our job is to do these things for you and for you to see the return on the investment and the monthly disbursement.

An eviction also lets me test the PM and gauge their performance in handling the situation. In my case, I actually have nothing to lose because one of my conditions for closing was to secure a 1-year rent protection guarantee. So, the PM really has no incentive to want to go through an eviction; they’re the ones eating all the costs.

Here’s some more info about evictions:

Evicted tenants do not get their security deposits back…namely because they owe us more money than the security deposit is for and typically have other costs on top of just the arrearage. The tenants are charged legals bills just as you are. In fact, they are charged a large bill because we charge an admin cost for the time and effort is takes to process evictions on our end. So yes, those charges are added on. Once the tenant is out of the home and we have final numbers to process their final account statements, we then submit those to our attorneys and a damage hearing is set for a future date (typically a couple of months out). If the resident does not dispute the final accounting statement, then a judgement is settled at the hearing and goes on their credit report and our collection agency then works for you/us to collect on the outstanding debt. If the resident pays any of that debt, it goes back to you.

Costs for eviction (no rent protection):

There isn’t a set price on what it costs to prepare the home…it depends on the condition at move out. We can sometimes gauge it from a pre-move out inspection, but all in all, we really can’t say until. It also depends on the deposit paid. The owner is only responsible for the cost of the turn above and beyond the security deposit. Evicted tenants do not typically take the time to clean or touch up anything before they move so basic expenses are cleaning the home ($130-150), cleaning the carpet ($110-150), touch up paint or full paint ($150-500 — this is the most variable expense), and minor maintenance like changing an air filter, mowing the lawn, etc. ($75-100).

Legal bills for an eviction will total $186 for the filing, and $13 additional if a writ is issued.

You are only charged a leasing fee once per a 12 month period, so in this case, there would be not extra leasing fees (tenant placement fee) after a new resident is placed in the home. You would just begin seeing regular management fees come out again.

I was charged this month for a writ bill:

A writ is provided by the courts for the landlord to take back possession of the home. It goes into effect at a certain time/date and can be used anytime during a set period of time (typically 30 days). We have the ability to exercise the writ anytime after it begins. It is also what is needed in order to call the constable and have her forced out of the home. This means that if she does not move voluntarily, the writ gives the landlord the legal right to remove any and all belongings that are on the property out of the property by our own means and costs and then the property is re-keyed and her possessions go into storage and we are no longer tied to them.

In spite of all this drama, I was able to collect $505.18 this month in cash flow.

The PM has a court order to take back the home on April 07 (I’m so glad Indianapolis is in a landlord friendly state!). Once the home is secured, 1-2 weeks will be needed to make it rent-ready for the next tenant. The PM has already begun to actively search for a new tenant.

So, am I turned off from this negative experience? I wouldn’t say so. I still believe that I picked out a quality property in a good neighborhood. Further, I have trust in the PM in place, and I really believe that this one incident is more an aberration than anything. I do have datapoints from other investors who are working through the same PM company, and so far they’ve been having a great experience. Evictions are unavoidable… It comes with the territory of being a landlord. On the bright side, it’s a good thing this is happening now while my rent protection is still in effect! 🙂

Rental Property #5: Chicago

Moving on from the drama that was Indianapolis, we arrive at Rental Property #5. From Day 1 of closing, this property was cash flowing, which is just the way I like it! The first floor tenant is Section 8, and $1098/month of the rent is subsidized. The tenant portion is $110/month. The second floor tenant is market, and their portion is $1250/month. Total rent for both units comes in at $2458/month. I was able to collect full month’s rent for March, and pro-rated rent for February.

After all expenses, total cash flow came out to be $1,524.45.

Summary

March marked the first full month where I’ve had five properties (seven units) rented out. Total cash flow for the month came out to be $3,800.20. Granted, a bit of extra change came in this month due to additional rents coming in for Rental Property #5 (pro-rated February). Nevertheless, seeing over $3,000/month in net cash flow is still a great feeling. Moving forward, I still plan on acquiring an additional rental property sometime this year; this will only help increase the cash flow even more. Getting to $3,000/month in net cash flow (after all expenses but assuming no vacancy/maintenance reserves) was one of my goals for 2014.

With that said, it is important (and always necessary) to point out the need to set aside a large portion of any net income for reserves. One of my primary goals this year is to build up a strong cash buffer. I’m going to keep diligently working on that throughout the year. Hopefully, the passive income stream keeps on snowballing and I’ll be ready to declare early FI sooner rather than later. In an ideal world, I’ll be able to hit $5,000/month in cash flow before checking out of the cube for good. Next month, I hope to have Rental Property #4 back on track…

Print Friendly, PDF & Email
Sharing is Caring:

32
Leave a Reply

avatar
12 Comment authors
Setting Goals… What’s That? (July 29, 2016)Cash Flow Statements (2015 Recap)April 2015 Cash Flow StatementMarch 2015 Cash Flow StatementJanuary 2015 Cash Flow Statement Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Retire Before Dad
Guest

FIF,
Nice month. Interesting to see the eviction process get started. The 1-year deal you have with the PM to eat the costs is nice. With 7 properties this was bound to happen eventually. Good luck with it.
-RBD

No Nonsense Landlord
Guest

Great Job!. Never be afraid of an eviction. Do not let the PM nurse the tenant along just to put the turnover of a new tenant in your own lap.

Analyze the tenants credit score against my website criteria. A Section 8 tenant, by definition, has the income. They are only allowed to pay 30% of their income in rent, Section 8 pays the rest.

In MN, we are the most expensive eviction state in the nation. It is $320, just for Court costs. And if you are an entity, like an LLC or S-Corp, you need an attorney. Plus the papers have to be served, not mailed. And a Writ is $55, and that needs to be served by the sheriff, at ~$125. The plus side, is it only takes 3-4 weeks.

The vacancy is your main expense on an eviction. You cannot show the property while you are evicting. The plus side, is Section 8 tenants are a dime a dozen.

No Nonsense Landlord
Guest

This tenant is not unique, it was probably very predictable. Most PMs do not have the slightest clue how to screen tenants, and that is their business.

On the next tenant, tell the PM you want a 620+ credit score, or better. Your rent is guaranteed, and they have to work for it. 620 is not a good score, but any means, but it will be a ‘C’ grade. Odds are, they will convince you to take a lesser tenant, demand another 12month guarantee for that new tenant, not a continuation of the original 12 months.

Only ~20% of the population has a score below 620. Understand credit score distribution. Understand the link between credit score, and risky behaviors. I turned our apartment complex from a Section 8 complex to a Class B complex, the story is on my site, and it was all due to tenant quality.

Keep a laser focus on tenant quality. That will make your life easier. Keep saving cash. You will need it. $3K per month is peanuts when you have a major turn.

As a comparison, I have ~$15k in cash flow, per month, not including maintenance, vacancy and my own management. I am a few months away from $1M in liquid assets, not including well over $1M in RE equity, ~$2.5M in net worth. And I am still not ready to leave my FT job….

B.Borg
Guest
B.Borg

Reading through your posts I’m curious how you went about finding these turnkey companies? Websites, direct referrals from other investors? Thanks, love the journey!

writing2reality
Guest

Congrats on a tremendously strong month FI! Certainly reserves will eat a good portion of that as you’ve noted but most impressive is the PM in Indianapolis right now. Seems very responsive and on the ball. Plus with a fairly inexpensive eviction process and landlord friendly state, this should allow for very quick turns should an eviction be necessary, thus avoiding months and months of lost rent.

Keep up the good work, with cash flow like this it won’t take too long to build the reserves and stock away some capital for the next one.

Dave @ The New York Budget
Guest

Awesome month! I actually think if I had $3,000 in cash flow per month, I would be close to hanging em up – even in NYC my expenses would be covered by that! Hoping to get there as soon as possible.

The First Million is the Hardest
Guest

That sucks you’re having to evict a tenant (for you and for them!), but it’s gotta be nice to see you still have positive cash flow in spite of that trouble!

Jason
Guest
Jason

Hi there FI

3k per month is a great month, congratulations! Keep on trucking and you’ll be able to FIRE in no time!

Anny
Guest
Anny

How inspiring! I got burned by out-of-state landlording before, but thinking of trying again, thanks to all the excellent info on your blog.

Arjun
Guest
Arjun

A $3800/month cashflow is great but what about income tax on this amount? Am I right in saying that you’ll end up with about 80% or so of this amount after income tax? Just trying to understand all the expenses here.

Evan
Guest

Wow $3K from a “passive” (a 4 or 5 on your scale) source is amazing! Are those numbers after PM fees?

Refinerr
Guest

Congrats on the awesome cash flow!

Thanks for posting such a detailed explanation on the eviction process. My family has rental properties but never considered investing out of state so they’ve never talked about landlord friendly states or even what CA even is considered to be. I really like your approach – seems very methodical and well planned! You can’t avoid a bad tenant like you said but you can lessen the pain as much as possible.

trackback

[…] FIFighter […]

trackback

[…] March 2014: $3,800.20 […]

trackback

[…] March 2014: $3,800.20 […]

trackback

[…] March 2014: $3,800.20 […]

trackback

[…] March 2014: $3,800.20 […]

trackback

[…] $3,000/month passive income […]

Close Menu