My first Rental- How am I doing? Looking to expand in 1 year.

[Andy Krzanowsky]

Cliff's Notes Below!

We started our first rental this year... we turned our former primary residence into a rental and I had the help of a family member to do all of the paperwork. My help had over 20 years of property management for a company that leased more than 3000 units.   All of the paperwork was tailored to my single family home.

We built and paid 200k for the house, in 2010, and got the $8k rebate from the Govt that didn't have to be paid back. I put down 25k(ish) and refinanced into a lower rate 2 years after living there. The rate is currently 3.35%.

My mortgage is now $1100/mo including taxes and the Homeowners insurance increase after I informed them it was a rental. We signed our tenant into a 2 year lease at $1700/mo. The house is a 1600sq/ft slab with 5" trim, granite, nice floors, etc. Maintenance should be low and we have a great tenant. They actually put carpet into all 3 bedrooms at their expense. Dream tenant that we will never have again

I obviously would have done things a little different if I knew we were going to move but we ended up moving out of the blue into a bigger house. It's a quiet subdivision with a good school district. I'm glad we decided to rent the home and not sell it. Our Realtor said it would have sold easily at $230k but she agreed that we should rent based on the monthly return.

I'm hoping to educate myself further so that I'm ready to invest into another single family home in a few years. 

I'm working on figuring out my ROI and some of the other calculators because they are all tailored for people who are purchasing the properties and use info that doesn't seem to apply to my situation.

I'm also curious how much I should build in reserves.  I'm cash flowing approximately $600/mo but putting every dime into a separate account to build reserves for an emergency.  My goal was $7k for reserve for this one property.  I will reach  my goal after the first year leaving me $600/mo to invest elsewhere.  I will likely contribute to my 457.

Cliffs Notes:

-Originally purchased the home for $200k with an 8k govt rebate ,  2010, and put approx $25k down

-Interest rate is 3.35

-We paid additional monthly payments and we currently owe $152k

-House is currently worth approx $230k based on comps giving me about 80k in equity

- Payment is $1100/mo and monthly rent is $1700/mo (No other expenses). Cash flow $600/mo

-Tenant pays all utilities

I look forward to all the information and advice.

Andy

[Jim Adrian]

As far as cash reserves go I have seen anywhere from 5 to 10% of the house value. How fast to hit this mark is up to you but sooner than later is better.  I would also make a budget list of what it would cost to repaint, re-carpet, reroof, new hvac etc and see what these numbers are. Then decide how comfortable you are with the finances.  Its a balancing act.  Its always good to have 6 months of mortgage on had for any future loans.  Set up the numbers so you don't have to use your personal funds.

 I would look at hvac yearly contract to clean the system 2 twice a year.  This runs about $170 a year.  This also gets you into the house to check it out every 6 months or so. This extends the life of the equipment and know know the filters are being changed.

It looks like you are off to a good start.