Making the numbers work. Some of your thinking, please.

[Digger Odell]

I'm looking to invest cash in a single family home or two and use them for rentals. My goal, like all of us, is to try and make more money doing this then letting the money sit in a mutual fund. This is where it gets a bit cloudy.

I'm trying to wrap my head around some of these articles and podcasts where folks claim they have X amount of monthly income from X number of properties. There is very little discussion about what their actual costs are for things like taxes, repairs, accounting, maintenance, legal fees. Always "I'm making $5000 a month in income and you can too". 

Can someone give me some honest, true numbers for a property or properties they own. What they actually clear (net) on any given single family home after all expenses for a given year or, say, after 5 years of ownership?

[Jeff Bridges]

Originally posted by @Sara N.:

Hi--here in DC, the properties are very expensive to begin with. The 2% rule that we've all been reading on BP, this rule surely doesn't work in a market like DC.  We have 2 rentals (row houses) in very good locations--both a few blocks from the metro, in very safe locations, renting to young professionals. It is very easy to find tenants and thus, we're able to more carefully pick and choose the tenants. We keep the rent a little lower than what's out there so our tenants' never moved out because of the high rent. We put a lot of $$ down for each, upgraded the homes, and have refinanced a few times, now with 15 yrs. mortgages and a very good rate. For us, after all that's said & done w/each of properties after the mortgages which includes payments for insurance and property taxes, after all these costs, as long as we are making a positive cash flow even small (a few hundred $$ each month, to cover stuff that breaks/maintenance) we are building equity and long term, once we sell, the property value will go up.  Specifically, with the total rent received, the take home $$ that's left per month after these above expenses: approx. $500+ on 1st property, approx. $200 on 2nd property.  So you can do the math and see how much we take home total each yr. Of course, we will need to pay $$ for maintenance & stuff that breaks, needs to be replaced on the properties this yr. Our properties are both in very good condition (as we already put a lot of work into it when we 1st got them. Overall, so far this yr approx. less than $1,500 for 1st property & $3,000 on 2nd property --($2,000 which was spent on getting the attic better insulated).  We manage our properties ourselves, so that cuts out the property manager expenses, even if it means dealing w/tenant issues.  Hey no one's going to care more about these homes than you the owners!  No way are we experts in RE as we are just buy and hold investors (we have full time jobs trying to save the world, not at all related to RE), we just look at doing this as a way of diversifying our investments, get a little passive income, not worry too much about $$, and hopefully will allow us to retire a little earlier. : )

Sara nice work on your rental. In your example you suggest you spend about 1000-1500 in maintenance only costs per house, which is about what most put aside for repair reserves each year. In 8 years for example, you might need to replace a water heater on each, so you should mentally be putting aside $125 each year in capex expenses for replacing a $1000 water heater (example cost) and $x/ remaining years left for HVAC replacement for example etc. so your ultimate cashflow might be 1000 less than the 6000 annual cashflow you get. 5000 annually is pretty good however. Also, others should note that you put significantly more down to acquire the unit, so your ROI might be lower than others that don't have multi six-figure DC townhouses:) Finally, vacancy can and will happen so you might not necessarily have accounted for this in your cashflow figures. Just an educational aside for others reading this.