Another month, another cash flow report. I always look forward to writing up these reports and sharing the results with everyone. What you see will clearly show whether or not the early FI plan is working, or not.
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 May:
Rental Property #1: Bay Area
Rental Property #1 continues to shine, and keeps on looking like a real winner. When I first screened for tenants, I made sure to tell them that I was looking for long-term tenants that wanted to stay around for awhile. The current tenants are closing in on their two year anniversary and I hope they want to continue living here. Yes, I am still possibly considering pulling off a 1031 exchange, which might force me to sell at some point in the future, but I really don’t feel the rush to make any sudden moves. I have great tenants in place who pay rent on time, are self-sufficient, and don’t feel the need to contact me regarding every little issue. As a landlord, what more could I possibly ask for? It’s a two-way street and I will gladly return respect for respect. I don’t have any intentions on raising rent… It’s been a very fruitful relationship so far.
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. I was also fortunate to land a wonderful tenant, and although I could raise rents (the initial one-year lease has expired), I don’t feel the need to at all. Market rent has increased by almost $400/month in this location (Class A neighborhood), which is borderline absurd. For those who aren’t from around the Bay Area, this type of rent increase (in just one year’s time) may seem outrageous, but that’s really the nature of the beast around here. Any landlord who got into the Bay Area around 2009-2012 is sitting in a most enviable position. Not only due to the surge in rent (and demand), but also because of the insane appreciation…
I was extremely fortunate to be able to win two Bay Area properties during the last downturn in the economy, and if there is another market crash in the future, this will seriously be one of the best places in the world to invest back into. Yes, there are definitely better cash flowing markets out there in the country, and cash flow is what will ultimately allow you to declare early FI… but if you want to build massive generational wealth (or find a shortcut to early FI), the Bay Area is one of the absolute best places to do it in. The extreme volatility experienced through its real estate cycle creates an enormous delta between the highs and lows. In other words, you can make out like a thief in the night thanks to the potential for potent appreciation. You just gotta get in at the right time…
Total cash flow for the month was $344.76.
Rental Property #2 Numbers:
Purchase Price: $290,000
Current Rent: $2,150/month
Rental Property #2 (June 05, 2014) Zillow Valuation:
Rental Property #3: Chicago
The first floor tenant (market rate) continues to pay on time and is a fantastic tenant. She renewed her lease last month, and I hope she also sticks around for a long while.
The second floor tenant FINALLY made rent payment this month, although she was unable to wipe out her entire balance. She paid $187.98, and I’m not exactly sure how she came up with that figure…
Some bad news this month… I learned that the second floor tenant’s CHA subsidy was reduced from $1,064/month to $857/month. This means that the tenant is now responsible for an additional $207/month. Since this is my problem tenant, I’m not feeling too good about this change. Did this come as a surprise to me? Yes, most definitely. I’m surprised CHA reduced her subsidy, and logically, the only real explanation for that would be that the tenant was able to increase her earned income (pay raise), or reduce the number of dependents that she is responsible for. I’m still trying to sort all this out with the PM, because to my knowledge, neither of the aforementioned has happened. Because of this reduction in Section 8 assistance, my cash flow for Rental Property #3 takes a hit.
Point noted. So, although a Section 8 tenant may sign a one year lease agreement, the subsidy is subject to change at anytime. It isn’t necessarily fully guaranteed for that entire year…
Total cash flow this month for Chicago came out to be $853.63.
Rental Property #4: Indianapolis
Rental Property #4 is just getting over the eviction hurdle, and we now have a new tenant in place! I’m crossing my fingers and hoping I landed a good tenant this second time around.
Here’s the message I got from my PM in early May:
I was going to email you tonight but you always seem to beat me to it! Great news actually. One of our current residents really wanted to transfer to a new home. We found a renter for her current home and they wanted to move in as soon as possible which means she would have to move in as soon as possible. She wanted a better area and something newer. Your home was a perfect fit for her. She actually signed the lease and took possession yesterday. It was a quick deal…we had her transferring to a different home but she saw yours and made the switch.
At the end of May:
The new tenant has moved in! She moved in pretty quickly because she was transferring from another property of ours and we had a renter who wanted to move into her other home as soon as possible. Because of that, she agreed (and asked) if she could clean the home herself since that was all that was left. We agreed to allow her to take possession of the home without it being completely market ready and gave her the credit for the cost that we would have paid the cleaner. That is why there is a prepaid amount of $150.00 that will be carried over to next month. I’m glad everything worked out overall for you to have the home turned quickly and a new renter in place.
I have one year rent protection guarantee with this property, so I will be reimbursed that $150 cleaner fee next month… That explains why the cash flow is slightly less this month. I’m just happy the eviction process moved along so rapidly… A quick turn is exactly what I was hoping for.
Total cash flow this month for Indianapolis came out to be $383.18.
Rental Property #5: Chicago
The first floor tenant is Section 8, and the tenant portion is only $110. Section 8 covers $1,098, or the bulk of the rent. Just like with my other problem Section 8 tenant in Rental Property #5, this tenant has started to become delinquent, and missed rent this month… Now that I have more datapoints, I’m quickly learning that the quality of some of these Section 8 tenants in South Chicago leaves a lot to be desired. Granted, the CHA subsidy is quite high for this one, but it really does boggle the mind why some tenants can’t be responsible enough to pay rent on time… especially since their portion of rent is so minuscule…
The second floor tenants are market rent, and receive no Section 8 assistance. Their rent portion is $1,250. They paid rent a little late this month, and to my surprise, they chipped in an extra $25 for the late fee. Unlike with my Section 8 tenants, the market rent ones seem to take responsibility a lot more seriously.
It’s still far too early for me to know for certain, but right now, I’m having much better success with market rate tenants. In the future, I could always elect to not rent out to Section 8 tenants… Again, it’s still early, so I’m keeping an open mind as I continue moving forward. By no means am I trying to paint a negative brush on all Section 8 tenants… I’m sure there are good ones out there… I just haven’t been fortunate in that regard, so far.
After all expenses, total cash flow came out to be $1,123.34.
Summary
Total cash flow for May came out to be $3,152.58. I’m glad I was able to clear $3,000/month again, but I will confess that the reduced subsidy for my Section 8 tenant in Rental Property #3 definitely put a damper on the results this month. I am very doubtful the tenant will come around and start consistently paying on time, so this would mean a recurring hit to the cash flow each month. Well, that is until the tenant’s lease expires in August, which really isn’t too far away. I need to work closely with my PM to make sure I have a new tenant in place and ready to go by then. Until next month…
Keep on fighting!
Thats a fantastic set of figures and even though you do have a couple of problem tenants, all your properties are still cash-flow positive every month. I am slowly reading through your earlier posts and it is really amazing to see how much you have increased your monthly income by.
MrsFinancialFreedom,
Being able to clear $3k/month even with problem tenants is pretty good in my book, and I’ll gladly take it.
I have to be a bit more careful with these type of tenants, and perhaps monitor the situation more regularly than my local tenants, but that’s the price you pay for the high yield… I’m cautiously optimistic moving forward, but I do realize that I will have to be more hands on… This is indeed NOT passive income (semi-passive at best).
Take care!
Great job. Soon you will see why most landlords avoid Section 8. And why most investors demand a very high return in CHI.
Your tenant in CHI, that is not paying, increased her income. You should have gotten a notice ~60 days out from S8. Odds are, her income was higher for the last six months, and she couldn’t make the lower rent amount.
Has the PM notified the Section 8 office? If your PM has guaranteed the rent, he is sandbagging until it is your own expense.
Eric,
Yes, the very high return is the main lure to investing in these type of neighborhoods/properties… Without that, it wouldn’t be worth the headache.
It appears that way, that her income has increased which makes the whole situation that much more baffling…
There’s no guaranteed rent with this one, and we are following CHA protocol on how to proceed so that I can get a new tenant in there when her lease expires.
All the best!
That’s a great month! I’m glad you have such an active property management company that’s actively managing your investment. Over the past couple of months I’ve had some issues with mine, as they didn’t see fit to actively post advertisements for an upcoming vacancy. This left me with one room open for a whole month, which resulted in a loss of $300 for me. Since then I’ve had my PMC e-mail/call me with any updates and we’ve so far settled the situation. But still, I believe the lesson we all learn from real estate investment is that nobody cares more about your property except for YOU.
Great post!
El Budget Nerdo,
Yeah, it’s always important for an investor to stay hands-on and in touch with the PM… Even if you want to be hands off and delegate to someone else, ultimately, the PM will never care about your investment the way you do…
I try my best not to micro-manage, but I know that I need to stay in at least weekly contact with all my PMs to make sure things are going smoothly and if there are any potential issues, I need to know ASAP… I actually spend more time managing my out of state rentals (with PM in place) than I do on my local properties, which I self manage… Who would have thought?
Best wishes! Hope you were able to sort out the vacancy issue.
Solid results! To have your properties appreciating while collecting a healthy cash flow is a perfect recipe to Real Estate investing. Very happy for your success. The numbers I look at are the monies you’ll be collecting when these properties are paid off…phenomenal. Good work!
Curtis,
Thanks! The appreciation I’ve seen locally has been tremendous and more than I could have ever expected…
Yes, at some point, I will look to pay off the debt and hope to own some rentals free and clear… Still in the accumulation phase, but that’s definitely in the future plans.
Best wishes!
Just a thought, now that I have a bit of time… Your PM probably needs to be FIRED, as soon as possible, in Indianapolis.
I would guess that the PM was having trouble at the previous property with your new tenant, and not paying rent. Maybe too much damage, or too many police calls. Maybe she was causing problems in a multifamily with other tenants.
I have seen PMs move tenants from one property to another, rather than evict. It is a common, underhanded PM practice. Your ‘old’ tenant might have gotten recycled to another one of their other properties too, or would have if she agreed to move out sooner.
The first owner is happy, they save an eviction cost. The second owner (you) is happy, they get a tenant quick. Did the PM give you the credit score of the new tenant? Odds are, it is very low. It seems like they told you about the tenant after they moved her in?
Tenants that move quick, into a property that is not ready, you do not want. Your PM saved a BUNCH of money by not having to paint and replace doors, carpet, etc. You are going to be stuck with the cost of that turnover at some point, after your year guarantee is expired.
Did the PM ever send you pictures of the ‘new’ place before this tenant moved in? Or the ‘old’ place after the move out? You know they took pictures and can send them, if not, fire them for not taking pictures.
Do not ever trust a PM. You are the PM, the man on the ground should just be carrying out your orders. You need to know how to manage the property in terms of tenant selection, and tell the PM how to do it. Only you care about your profit. They care about their own profit.
Odds are, you will have trouble with this tenant in Indianapolis soon. Only by knowing the tenants credit score, can you predict what will happen. Did the PM share the credit score with you? Share the previous background check at least? If not, fire them.
Keep saving capital, you will need it.
Here is a great read from my blog. I also have a post on BiggerPockets about PMs to be published this weekend. I will post the link on my blog as soon as it comes out.
http://www.nononsenselandlord.com/2014/03/property-managers-the-downside/
Eric,
Interesting points, and something to keep note of… I would hope that the PM I have in place is more ethical than that, but I guess I’ll find out…
I have seen pics after the first tenant moved out… Lots of trash, but I didn’t notice anything that needed much repair work… Then again, they might be hiding pics from me, but I wouldn’t know… As an out of state investor, and someone who relies on a PM, there is a lot of trust you must enlist to someone else… It will never be like self managing, but that’s the price/risk you pay with investing out of state.
Cheers!
Unfortunately, local deals are tough to find, so I’ve accepted those risks…
Do you think they screened the new tenant any better then the last one? Did they even show you a credit score, or a background check?
Nice cash flow on your properties. How long did the entire eviction process take on your Indianapolis property? Glad you got a paying tenant in there now. I worked briefly in Housing Court in NYC…the eviction process seemed to drag on way too long, especially with tenants who knew how to game the process and to drag it on as long as possible without paying rent.
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Thanks for sharing your cash flow statements from your rental properties. So far so good it seems cash flow wise from each of your properties. I have a question about your management of the homes as they are all over the place. Do you find it a hassle and have the need to go out and visit the properties from time to time or do you only go out when something is not right. Just trying to figure our your “hassle” factor with owning so many homes in various places. Thanks!
Congrats on the cashflow. Fellow rental property investor here from Indiana. Your rent incomes look huge! Would love to invest with you if you’re interested.
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