It’s been one year since our first residential rental property opened for business. I say that because it’s very important to treat investment property like a business. After being landlords for a year, I though I would share my thoughts on the whole process of rental property ownership.
We chose to use a property management company, and up to this point, they have done a wonderful job. The particular company we use has an agreement in each lease to go in every quarter for seasonal updates to the property. While, this is true, it’s actually a great way to make sure the tenants aren’t running a meth lab in our house. We also get a report after each inspection with repairs that need to be done right away or in the future.
Our tenants were late with the rent only one time. They paid about a week late, along with the $50 late fee. I’m honestly very glad I haven’t had to go chasing anyone for late rent because I’d probably be a sucker for a sob story. For now, we will keep property management so that we don’t have to worry about things like this.
I’d say we were pretty lucky this year. There were a few minor repairs and a leak under the sink, but those were easy fixes.
In Colorado, the landlord does not have to cover any of the utilities, so our rental lease states that all of those are tenant responsibilities. The water and sanitation departments used to one department and would let tenants put the bill in their names. This is how our tenants were billed in the beginning.
Then, those departments had a falling out and decided to separate. Now the sewer bill comes separately, but they won’t allow anyone’s name on the bill except the property owner. They will send a separate statement to the tenant, but we are still on the hook if it isn’t paid.
We were bummed at first because we assumed this meant an extra $30 per month out of our pocket. The tenants had no reason to pay up because the bill was in our names, but amazingly, they did. We had a couple of months when we had to pay while everyone was getting used to the new arrangement, but since then, they haven’t missed a payment. I do call every month to make sure, but knock on wood, it’s working out pretty well for the moment.
We know that when our current tenants move out, we will need to replace some windows. The current ones are functional, but old and not very efficient. We decided to replace a few with every turnover of renters, so that’s an expense we know is coming.
Emergency Funds are So Important When You Have Rentals
You also never know when an appliance might die or a major repair might pop up. That’s why we are keeping a pretty hefty emergency fund. Right now, any rental emergencies would come out of our general savings.
Our goal is to keep saving our cash flow every month until the rental account has $10,000. Then we will shift some money from our general emergency fund into better income producing investments.
How Much Did We Make?
As of October 1,our rental property has brought in $6776 for 2013, and our expenses including mortgage, insurance, taxes, property management, the sewer bill for a few months, and repairs was $3840.81. That makes our net gain for this year $2935.19.
However, last year was a different story. Our renters moved in at the end of October, so we only had two and a half months of rent in 2012. Because we had to invest some money to get the property ready to rent, our numbers at the end of 2012 were -$5683.15, which doesn’t include the down payment and closing costs. When you look at the full 12 months from October 2012 to October 2013, we are in the negative by -$2747.96.
Is It Worth It?
Considering that we have done pretty much nothing since getting the property renovated, I think this is an easy $245 per month. We owe about $46,000 at 4.25% on the balance of the mortgage, so this is something we could conceivably pay off to increase our monthly cash flow. We haven’t decided if this is the best use of our liquid funds.
Yes, it did take some money to get started, but the way I see it, someone else is paying off this house and whatever repairs it will need in the future. We can sell it someday for a profit or keep it as an income source for retirement. This one property isn’t going to pay our bills, but it adds to other streams of income that we are in the process of developing.
Our tenants just renewed their lease, so hopefully next year will go as smoothly as possible. I’ll let you know either way.
Would you love to be a landlord or is it smarter to invest in the stock market?
I’m guest posting today at Moneystepper about the pros and cons of blog giveaways. Check it out!