Diary of a Rental Property

[J Scott]

I had a blast writing my Diary of a New Construction Project thread, and the feedback I got from that was great. So, I've decided to try another one...this time tracking and discussing the ongoing saga of a rental property that I'm in the process of buying, rehabbing and renting out.

A few details about this project and thread:

• I'm not a professional landlord, and while I've had a couple rental properties in the past, they were all short-term and relatively turn-key (I didn't have to do much for the short time I owned them). This time, I'm looking to hold some properties longer-term, and the one I will be discussing in this thread will be my first longer-term property.
• Because I expect this to be a longer-term hold, I expect this thread could continue for a quite a while. Obviously, I won't have stuff to post everyday (especially once the house is rehabbed and in service), but I'll try to follow-through for as long as possible, and hopefully until the end of the project, whenever that is.
• I really have no idea what I'm doing when it comes to holding long-term rentals, so I'm guessing this thread will be more of a "what not to do" thread, as opposed to a "what to do" thread. That said, I'm open to all constructive critique, and hopefully advice, opinions and feedback I get in this thread will actually help me to be more successful.
• I will, of course, post as much detail about the project as feasible, without risking giving away anything inappropriate about tenants, etc. I'll try to provide all documents, invoices, pictures, budgets, schedules and financials down-to-the-penny, so everyone will know just how well (or how badly) this project goes. Maybe we'll even get some insight into the "50% Rule" while tracking a real life project.
• I have a partner on this project. It's a good friend of mine, and I'll likely be referring to him throughout the thread. Let's call him "Brian"...which makes sense, since that's his name.
• This "diary" is going to start in the past, when I first found the house. I've been keeping notes in anticipation of starting this thread, and I imagine I'll be caught up to real-time in the next couple weeks. But, you'll notice that the dates on the first several posts will be in the past, and that's why.

Please feel free to ask any questions, provide any advice or give any opinions throughout the thread. I may not listen to all of them, but I always appreciate the feedback.

Now, on to the thread...

[J Scott]

Someone reminded me about this thread today, and coincidentally, it's been just over three years since we put this property into service...  Looks like I missed the two year update, but thought I would provide the three-year update for anyone who might be interested...

• We're on our second set of tenants since we purchased the property.  The first tenants lasted for about 18 months, and these tenants are about 18 months in as well -- they have 6 months left on their lease.

• We haven't raised the rent in three years -- it's still at $1450/month.  We're still right about market rents for this area, give or take $25 or so.

• I've probably put about 10 hours of effort into the property over the past three years -- our property management company has been pretty good, and other than a few late payments, our tenants have been pretty good as well.

Here is what our Profit and Loss Statement (P&L) looks like for the combined three years:

Our Net Income appears to be $24,252.88.  But, you'll notice that that includes a depreciation line item (which is just a paper loss) of 4,752.00.  Adding that back into the net income, we have a total net income over the three years of $29,004.88.

On a total cash investment of $79,374, that $29,004.88 represents a cash-on-cash return of about 36.54%.  But, that's over three years -- dividing by 3 yields an annualized cash-on-cash return of 12.18%.

My goal is 12% cash-on-cash return on unleveraged properties (we paid for this with cash and never refinanced), so we're right on target for this one.

Our total expense ratio (including rent loss and CapEx) for three years is about 43.5%.

While this number will fluctuate over the years with changes in CapEx, vacancy, additional turn-over costs, amortized tenant-placement costs, etc., for the first three years it's a good bit less than the "50% Rule."  I expect that over a long-term hold, we'll be closer to the 50% range for expense ratio -- with little turnover costs, vacancy and non-payment thus far, we're pretty much maximizing our income ratio right now.

I ran a quick IRR analysis of what my compounded return on this investment would be if I sold today at market price (including selling costs), and got somewhere around 18.2%. Not that I'm considering selling today, but always good to know.

For reference, we now own 41 units...

Happy to answer any questions!