This is year three of rental property ownership for the Eyes on the Dollar family, and wow, what a year it’s been. We went from having one easy commercial building and one single family home to multi-property ownership after buying a very outdated fourplex at the end of last year. Here’s a recap of our rental property ups and downs for the year.
The earlier part of the year was extremely frustrating and expensive from the landlord perspective. You can read about our renovation experience, but to summarize, we took a property with three apartments (two decent and one crappy) and made it into four nice apartments. We also turned over four tenants during the process.
I would be lying if I said I didn’t worry about spending thousands of dollars at a time when no rental income was coming in. It also would be false to say that I love the city building inspector. He let us know two weeks before our final inspection that we’d have to replace the entire water line to the property at a cost of about $4,000 to get our certificate of occupancy. He is off the Christmas card list!
Finally Making Money
I did know that if we could stay the course, our vision would come to fruition, and I was right. Since June, our
fourplex has all four units rented and brings in almost $3,000 per month.
We took one month of rent and installed a sprinkler system to make the yard very low maintenance. Tenants usually could care less if the lawn is brown or full of weeds! Sure we’ve had some other repairs and expenses that have popped up, but I feel pretty confident that the unit should pay for itself at this point, including the cost of renovation. We didn’t spend any out of pocket money for the construction, choosing to use a HELOC instead. I don’t like the idea of more debt, but I do like the idea of tenants paying our mortgage and remodeling costs.
Rental Income Portfolio
Our other rentals are still humming along. The commercial building is occupied by my former optometry practice, and I see no changes in the near or distant future. We had a pretty low cost year compared to 2014 when the entire HVAC system was replaced. The only repair expenses were for gutter cleaning and some roof repair for around $1500. Currently the commercial rental loses a little money every month because we have a 6 year mortgage with a high payment. The good news is that we only have four years left before it’s paid off!
Our other little rental house turned over its tenant earlier in the year, but affordable single family houses for rent are scarce in our area. There was new tenant within a week. We’ve had less than $300 in repair expenses for the house this year.
In months when we have no repairs, out cash flow looks like this.
FourPlex: $2975 rent- $1700 expenses= $1275 profit
Single Family Home: $780 rent-$357 expenses=$423 profit
Commercial Building: $3324 rent-$3239 expenses= -$15 loss
Another nice thing to consider is that our rent will continue to increase while mortgage payments will stay the same until they are gone.
Things That Make Rental Property Manageable
Managing rental properties can be a full time job. Some tenants won’t call until the whole place is underwater while others call if the refrigerator door won’t close on it’s own without having to touch it (yes, that really happened). Fortunately, you don’t have to go nuts if you have the right systems in place.
We use property management and highly recommend it. Jim and I are out making money from the things we do best. Fixing refrigerators is not one of them. Yes, managers do take percentage of profit, but I don’t think we could fill vacancies or keep tenants as happy as our managers do at the moment.
Once we retire, my hope is take on a more active roll in managing our rentals. That doesn’t mean we won’t be efficient in doing so. I plan to add property management software, like Property Matrix, that will allow us to manage tenants through mobile aps or by using the cloud when we travel. Having the ability to manage leases, screen tenants, and manage rental income and expenses on the go is a must. I’m not sure how people did without current technology.
We will also have our own team of people ready to do repairs or maintenance we aren’t able to do by ourselves. Again, this does take a portion of profits, but if you choose rentals that cash flow well, it shouldn’t be an issue.
Investing Rental Income Wisely
Right now, all the profit goes back into our rental purchase/repair fund, which was heavily depleted last year after buying the fourplex. Once we hit our target goal, we’ll start paying more toward the mortgages. With all of our expenses this year, I believe we might also get a tax refund that will go toward these goals as well.
We don’t plan on buying any new rentals until we have at least one or two paid off, but adding more is in the master plan. Owning rental property will hopefully fund our early retirement dreams and keep our nest egg in place for a long time.
Are you able to see the big picture in the middle off an expensive process? What do you think are the hardest and easiest parts of owning rental property?