I have spent very little time covering my side hustle properties on this blog… Since my investment partners and I won both Rental Property SH #1 and Rental Property SH #2 last year, I have basically stopped talking about them completely.
It may then come as no surprise for readers to learn then, that for the most part, my investment partners spend even less time thinking about, and/or managing these properties than I do.
Why is that?
Well, there’s really nothing to report. And in the business of landlording, no news is usually good news!
In any case, here are some more details.
Rental Property SH #1
We first won Rental Property SH #1 back in late August of 2014. Our purchase price was $490,000. At the time of purchase, our short-term gameplan was to hold this property for ~5-7 years, as we were projecting at the time that it was in the realm of possibility for this type of investment to appreciate to ~$700,000.
One year later, nearby comps are selling for ~$580,000, although a next door neighbor did recently close at $630,000 earlier this year.
So, we’ve witnessed about ~$100,000 in appreciation in just a little over a year. Not bad, and if the market can hold up, we should easily be able to hit our $700,000 target sometime within the next 5-6 years.
Since we haven’t yet achieved our appreciation target, in the meantime, we’ve had to rely on renting out the unit for cash flow. Luckily for us, this property is located in a Class A neighborhood, and this property could not be any easier to rent out. As I’ve emphasized before in the past, when it comes to real estate investing, absolutely nothing beats a wonderful location where demand is high.
Originally, we were renting out the unit for $2,850/month. Since it has been over 1 year now, we recently extended the lease agreement, raising rents to $3,000/month. At this time, market rates are closer to $3,300/month, so we are offering our tenants quite a discount.
But it’s a two-way street. These tenants pay rent on time, are low maintenance, and by staying put, they save us a ton of time of having to re-start the entire tenant leasing process (clean up, open houses, screening, etc.) again. So, I’m more than happy to return the favor in any way that I can. And as every landlord knows, vacancy is the one thing that will decimate your cash flow more than anything else!
Plus, I really do love passive investments, so the less amount of work I have to do, the better!
My investment partners are also shrewd people and realize that there should be no rush at this time to try and milk our tenants for every last drop… Although cash flow isn’t too abundant yet, we are very much cash flow positive, are paying down a tremendous amount of principal every month, and really, we just let this thing run on autopilot each month.
Further, we are currently in the process of refinancing our mortgage, attempting to lock in a lower rate. If all goes well, we should be able to reduce our monthly mortgage payment by $140/month.
So, the combination of rent increase and mortgage reduction should help increase cash flow in the positive direction by $290/month, year-over-year.
Over time, I’m confident even more cash flow will be generated from this wonderful investment.
Patience will be rewarded. Just gotta stay the course until then…
Rental Property SH #2
The story of Rental Property SH #2 is not much different. We originally purchased this property for $521,000 and the current valuation is about $600,000.
Our target for this side hustle is also to see it rise to the realm of ~$700,000 within 5-7 years. After one full year, we’re quite pleased with the progress already being made here.
Like SH #1, this property is also located in a tremendous Class A neighborhood. Similar to the other property, we extended our lease agreement with our pre-existing tenant for another 1 year. Unfortunately, with this unit we had already conveyed at a much earlier time to the tenant that we would be extending them at the same rate.
So, we’re locked in for another year at $3,100/month.
Market rent is around $3,400/month.
Not an ideal situation, but this tenant is wonderful, and is actually our best one. For starters, we’re renting out to a corporation who not only furnishes the entire unit, but brings in hired maids (their expense, not ours) to clean up the place 2x/week.
Everytime I visit, I find the unit to be in impeccable condition, just as good (if not better) than the state it was in when we first rented it out. So, the big picture tells me that even though our rents are low today, we are probably saving a ton of money on wear and tear down the road.
Yes, we’ve had a few maintenance repair items pop up from time to time. Over the year, I’ve probably had to stopby for repairs 5-6 times. Since we are running the PM services ourselves, we are saving a lot on expenses. Luckily, so far, we haven’t had a single repair item exceed $100.
When it comes to cash flow, we are also in the GREEN with this unit, and it actually generates a better monthly income than SH #1 since the rent is slightly higher for this unit. Currently, we are also in the works of refinancing this unit as well, getting out of a 7/1 ARM and into a 30 year fixed rate mortgage. Once the refi is completed, our monthly cash flow should decrease by $80/month.
In regards to cash flow, we are still doing well, but there is clearly a lot of wiggle room for future improvement.
With these properties, you really have to take a long-term approach to appreciate the wonderful investments that they are. A myopic viewpoint will discount them as “lousy” investments because the cash flow numbers have not yet delivered strong double digit returns…
But as I’ve learned, Day 1 cash flow numbers do not tell the entire story.
When it comes to both cash flow and appreciation, much more important than Day 1 numbers, are Year 5 numbers… Year 6 results…
After 1 full year of ownership, we have already increased our cash flow from SH #1 by $290/month. For SH #2, cash flow will actually take a slight hit (but still cash flow positive), as our new 30 year fixed rate mortgage will not offer as attractive a rate as our 7/1 ARM.
But at this moment in time, we can afford this setback on SH #2, since the gains in SH #1 more than compensate for any decreases in cash flow. In fact, the overall result of both moves is net positive.
Again, it’s a slow and steady approach, but we just have to be patient with these investments… I can clearly already see the benefits, and long-term, these side hustles may well prove to be the best investments in my overall portfolio.
To wrap up, after 1 year, we have noticed:
- $100,000 appreciation in each unit.
- $290/month increase in cash flow for SH #1.
- $80/month decrease in cash flow for SH #2.
- Wonderful, low maintenance tenants who have extended their leases for an additional year.
- Hefty paydown of principal each month (total for both units = ~$1,000+/month).
After 1 full year, so far so good…