Income off single family rental

[James Lucero]

I’ve been a part of the forum for a few years now. Deviated from pursuing this and ended up buying a house here in North NJ, is there an avg return on single family rentals? I was planning on just selling the property, the past year or so my area has gone up in value if I sold the property I would’ve probably walked away with 100k after fees etc. I only bought if 3.5 years ago and invested 20k to spruce it up.

This last weekend as I was getting ready to call the realtor and tell her we were ready to put it on the market but then I couldn’t think of what I would do with that money right now, returns on my portfolio are around 7% but I wouldn’t be putting it all into the market and didn’t want to be making no interest off my money.

Long story short I posted it for rent this last weekend, thought I'd give it a shot. This was Saturday morning, by the afternoon I had gotten 12-15 people that wanted to view the house. I set up various appointments the next day every person that came wanted to put a deposit down. It ended up getting into a bidding war (I had only priced to make my mortgage payment and a $295/month profit. It ended up in a little bidding war and I ended up renting it where I'm walking away with $642 profit monthly and it'll increase by $271 when my PMI falls off in less than $10K.

I know I have to budget for repairs and unforeseen issues but furnace and Ac is all new I expect minimal problems and the tenants is taking care of all the maintenance like the lawn and small things. So is that a normal margin for profit? I think I remember reading years back the the avg return per unit was around $200 but didn’t know if that was just for multi family. Thanks

[Jon K.]

@James Lucero I would say no, there is not an average return on single family rentals because there are too many variables at play that make up that number. It depends on so many things: Fair market rent, average maintenance, capital expenses, vacancy rates, insurance rates, debt service if you have a loan, taxes, etc. And each of those are affected by a number of things as well.

When you say profit, I assume you're talking about cash flow here and not including debt paydown. Is that $642 profit, or is that $642 you're collecting in rent above the mortgage payment before holding a certain amount back for all those other expenses? You may not expect any major expenses in the near future but hold that property long enough and they will come. As will vacancies and other costs.

If it helps put things in perspective in 2018 I averaged a little over $450/door/month in cash flow for my single family rentals which was a year with full occupancy and few issues. 2019 Involved one vacancy and some capital expenses and that number dropped to $289/month.  So far in 2020 things have gone smoothly (I've been very fortunate) and I've also been able to refinance 3 of my mortgages to reduce my interest rates by 2.5% so I'm currently beating 2018 numbers.