FI Fighter
≡ Menu

Rental Property #5 Update (February 19, 2013)

Print Friendly, PDF & Email
chicago-7

DONE! Rental Property #5 completed closing today after I signed the docs and wired out the money. Now, we play the waiting game, and hopefully can secure full month’s rent starting next month, in March. Closing this property puts me one step closer to the endgame. I can’t wait until this property starts generating cash flow b/c it should be a cash cow!

The 1st floor unit passed Chicago Housing Authority (CHA) inspection recently, and rent determination came back at $1208/month. It is a four bedroom, 1 bathroom unit. The 2nd floor unit should also rent for the same amount, since it is also a 4/1.

Here are the estimated returns, when factoring in 20% for reserves (10% for vacancy and 10% for maintenance, or 5% for vacancy and 15% for maintenance, etc., depending on how you want to calculate it):

Note: Spreadsheets below do NOT factor in closing costs, which I probably should have included to calculate true ROI… It’s still a good representation, though, and I’m definitely not the type of person who gets THAT caught up with numbers. I just need something close… I’m not going to lose any sleep because my cash-on-cash returns are actually 1% lower in reality…

chicago_returns

Since this property is fully redeveloped (turnkey), it really shouldn’t need much maintenance in the first few years. We’ll play it safe, though, and budget 10% in each month.

Everyone runs numbers differently, and you just have to do what works best for YOU. For myself, if I can get ~10% cash-on-cash returns after setting aside 20% for reserves (vacancy and maintenance), I’m more than happy with that. I’m not an All-Star investor, and honestly, I don’t really feel like I need to be one in order to succeed.

Cash flow is the name of the game! So, being able to generate over $500/month net would be just fine with me…

Here’s what the raw numbers (best possible case scenario for a given month) would look like without allocating for reserves:

chicago_returns2

And of course, after closing, I made sure to go out and celebrate! This is somewhat of a tradition I’ve been practicing since closing Rental Property #1… I ALWAYS make sure to reward myself for closing a deal. Gotta live it up a little and enjoy all your hard work, right? 🙂

I don’t eat at expensive steakhouses, but sometimes, like tonight, I do indeed get steak (prime rib):

photo (6) photo (7) photo (8)

And that concludes the journey of closing Rental Property #5. I’ll probably take a small hiatus for awhile and work on building back up the cash reserves. After that, we should be on schedule to get another property towards the end of this year. Next stop, Rental Property #6! Let’s go and make it happen!!!

Related Posts :

{ 23 comments… add one }
  • LeighNo Gravatar February 19, 2014, 10:00 pm

    Woo, congrats FI! Real estate prices are sure different in other places…

    • FI FighterNo Gravatar February 20, 2014, 8:01 pm

      Thanks Leigh!

      Prices sure do vary a lot across the country. For an investment, you just gotta go with what works.

      Cheers!

  • JC @ Passive-Income-PursuitNo Gravatar February 20, 2014, 4:12 am

    Congrats on closing #5! I know it’s been a long time coming but at least it’s over and done with and should starting contributing to your bottom line soon.

    • FI FighterNo Gravatar February 20, 2014, 8:02 pm

      JC,

      Thanks! Yeah, this one did take longer than expected, so I’m pretty thrilled that it’s finally over.

      Best of luck on your own hunt!

  • MattNo Gravatar February 20, 2014, 4:52 am

    Way to go – congrats! Rental Property #5 puts you pretty close to your forward-looking PI goals, no?

    • FI FighterNo Gravatar February 20, 2014, 8:03 pm

      Matt,

      Thanks! Yup, I’m getting closer and closer to the end goal… If I can lock up one more property this year, I’ll be in good shape to setup for the finale in 2015.

      Cheers!

  • EricNo Gravatar February 20, 2014, 5:18 am

    Congrats on the property. Keep building reserves. As you get more units, individual turns are cash flowed and paid by the other units with tenants, but that also means less cash flow to the bottom line. Watch the property manager, they make the most money, when you make the least.

    Quality tenants in a quality building is where the money is at, and also low quality tenants in a low quality apartment. But you have to run each one totally different.

    • FI FighterNo Gravatar February 20, 2014, 8:09 pm

      Eric,

      Thanks! I’m going to take your advice and work hard towards rebuilding the cash reserves. That’s my main focus from this point on…

      In regards to quality tenants, I think I understand where you are coming from. I do have some premiere units in my local area where it is easy to find 750+ Credit scores and $100k+ income… Those tenants are very reliable, professional, and all that…. So far, the experience has been great and I’ve been able to minimize vacancy rates.

      With that said, I’ve also invested into other areas which cater more to low income, Section 8. It definitely comes with its own set of challenges… When things are operating, the cash flow is significantly higher… However, there’s more to be concerned with, and for these units I always feel like I need some sort of rent protection insurance…

      So yes, definitely, I run the two very differently.

      Cheers!

  • writing2realityNo Gravatar February 20, 2014, 9:21 am

    Congratulations! Time to regroup for sure! Have you decided on whether or not you are going to present net cash flows inclusive of some level of reserves? Perhaps pool your total cash flow and take 10-15% right off the top as reserves (treat like an actual business expense). Should give a better idea of what your true monthly cash flow will be in aggregate. Plus it won’t hurt to “forever” stock away that 10-15% combined into an account specifically for any vacancy/maintenance issue and not have to touch your monthly cash flow statement.

    • FI FighterNo Gravatar February 20, 2014, 8:13 pm

      writing2reality,

      Thanks! In terms of presenting net cash flow, I will present that as is in my monthly cash flow statement reports. So, although I am setting aside reserves each and every month, I won’t publish those numbers in the report. The report will simply show net income generated from the property for that month. For recurring expenses, they are evenly divided by 12, even if I happen to make a lump sum payment.

      At the end of the year, I tally everything up and publish the net operating income and cash flow numbers. That’s my true cash flow generated each month.

      Hope that answers your questions.

      Take care!

      • writing2realityNo Gravatar February 21, 2014, 8:07 am

        Makes sense. Certainly a net income statement is different from a cash flow statement. Just thinking about roofs, appliances, and other capital expenditures that don’t come frequently, but certainly have a large impact!

  • SavvyFinancialLatinaNo Gravatar February 20, 2014, 12:30 pm

    Congrats on the new rental!!!

    • FI FighterNo Gravatar February 20, 2014, 8:13 pm

      SavvyFinancialLatina,

      Thanks! Exciting times 🙂

  • Dave @ The New York BudgetNo Gravatar February 20, 2014, 1:54 pm

    Congrats! And that dinner looks phenomenal!

    • FI FighterNo Gravatar February 20, 2014, 8:14 pm

      Dave,

      Thanks! Not too bad for $20 dinner if I do say so myself 🙂

  • The First Million is the HardestNo Gravatar February 20, 2014, 7:10 pm

    Congrats! It’s seriously impressive how quickly you’re accumulating these properties!

    • FI FighterNo Gravatar February 20, 2014, 8:15 pm

      Jay,

      Thanks! I might have overdid it last year/early this year, which is why I now need to back off the accelerator and proceed with more caution.

      Buying properties is exciting, but building cash reserves is the smart thing to do right now.

      All the best!

  • MartinNo Gravatar February 20, 2014, 7:55 pm

    Today I forgive you Fighter. I just had a diner so, your pictures didn’t make me drooling this time.

    Well, big CONGRATS on your #5 !!!!!!

    I started being quite successful with options trading and combined with dividends I will be able to retire in 5 years with less principal. Now I have to work for it hard, but in 5 years I should be able to stop the rat race. Hopefully.

    So it is nice to see you getting closer to your dream without being a bit envy 🙂

    • FI FighterNo Gravatar February 20, 2014, 8:16 pm

      Martin,

      Thanks! That’s so awesome that you are doing so well with options trading. I seriously wish you the best and hope you can exit out of the rat race in only 5 years. That would be amazing!

      Haha, maybe it’s a good idea to eat before reading this blog? I like to post pictures of food 😉

      Take care!

  • JulianNo Gravatar June 22, 2014, 7:50 am

    Hello FI, I was wondering if you could share the turnkey companies you have successfully worked with in the cities you own properties. I have been looking online and it is hard to distinguish the serious ones from the scammers 🙁

Leave a Comment