"A year+ of progress...or maybe not." Deal Analysis after 1 Year

[Joe P.]

Thought this would be fun to expose some of the financials and situations of my current rental.

I purchased a duplex in Gloucester City, NJ in July 2018; I've had it now for over a year.

Here are the initial numbers:

• Purchase price: $102,900
• Money-In: $31,728 (exact amount including closing costs)
• Mortgage: $77,175 @ 5.625% over 30 years
• Potential Monthly Rent: $1900 total (each unit is a 2 bedroom, 1 bath unit at $950 per month)

I put no money into the property as it showed very well (mistake 1), and set aside 10% of rent for CAPEX, 10% of rent for maintenance, 8% for vacancy, and wanted to self-manage. I also set aside $2050 for water bills , along with $450 in common electric. This is how the numbers started on day 1:

• Income: $1900 per month
• PITI: $925.84 (includes flood insurance)
• CAPEX: $190 per month
• Maint: $190 per month
• Elect: $38 per month
• Water: $170 per month
• Expected monthly income: $386 ($193 per unit)
• Return %: 14.60%

And here is where I am after a year plus:

• Overall Cash Flow: -$3,414 (yes, that's negative)
• Return %: -5.56%
• Income: $18,370
• All expenses under budget...except...
  • Total CAPEX in 1 year+: $6,118
  • Total Maint in 1 year+: $7,444

What I've Learned:

• If you plan to start a property with no budget for items needing fixing, you will probably be really upset.
• It could just be this property, but 10% for maintenance and 10% for CAPEX were completely blown out of the water. Its not even close how over-budget I am.
• If you cannot, or will not, do any CAPEX/maintenance on your own -- 10% budget on each probably won't cut it.
• Find yourself someone you can trust -- a landlord, a repairman, someone...and have them walk through a potential property. Look for the big ticket items, like water in a basement, heating/cooling units, appliances, bathroom and kitchen items in need of repair or replacement, windows/doors, PLUMBING, ELECTRICAL. If things look bad, assume the worst and budget for it.
• Pay attention to big ticket items that might need fixing, repairing, replacement, etc. (see below)
• Pay close attention to how prospective tenants act. I am finding that tenant mannerisms and how they interact with you is about 90% accurate of what to expect when they are in the dwelling.
• If you have a job that makes far more income than your investments (to start) -- find yourself a great PM and pay them. Its far easier to manage your PM than manage your tenant, properties, repairmen, etc. 

Finally, in case you don't think things can go wrong...and I probably picked a lemon of a property...here's a list of replaced items:

In ONE YEAR, we replaced the upstairs tub, upstairs toilet, bathroom vanities in both bathrooms, upstairs oven, downstairs fridge, upstairs water heater, downstairs, water tank for heater furnace, building sewer checkvalve, and screen door downstairs. This doesn't include 2 very sad plumbing issues, one where the waste pipe was cracked and leaking (relatively small fix), and during a major rainstorm, part of the expel pipe was too heavy for its mount, and it just fell to the ground in the basement.

And finally...would I have done this if I knew I would have had the type of return (so far)? Abso-friggin-lutely. I hear too many people who are afraid to get involved and can't make the jump. I've had a negative return in a year plus. But I used good repair people and bought a lot of new items, and if we can even stay on budget with them, I think there are greener pastures ahead. My next property will involve far more due diligence, a higher "all-in budget", higher padded CAPEX/maintenance, and finally, management. I am in the investment business, not fielding calls from tenants at 11 PM for a leaky pipe business. And, remember always, this is a LONG-TERM investment...short losses can be made up over the course of time.