Our First Investment Property: Year 1

[Max Householder]

I had been meaning to post a recap of year one for our first investment property and finally got around to it...in April. Anyways, here goes. 

In November of 2016 my wife and I purchased a 4-family investment property in south city St. Louis. After concluding our first calendar year of owning the property, I thought I would share the results. I found posts like this to be helpful when I was first learning about investing in real estate, so hopefully someone on here can get something out of it.

Our goals were to cash flow $100 per month per door, have a cash-on-cash ROI of 12%, and achieve a total return of 20%.

Purchase price: $179,900
Our loan is a 30-year fixed rate residential mortgage at 4.25%
25% Downpayment: $44,975
Mortgage Payment (Principal & Interest): $663.75

Operating Income
$26,435 scheduled gross rents (4 units)
$(1001) vacancy
$600 garage rent
$11 interest
$26,045 gross operating income

Operating Expenses
Property Management (10% of gross rents): $(2543)
Leasing fee for new tenant placement: $(550)
Sewer: $(1397)
Water & Trash: $(1232)
Lawn care/mowing: $(350)
Gas & electric during vacancy: $(228)
City occupancy inspection aka government extortion fees: $(183)
Maintenance & Repairs: $(3594)
Property Taxes: $(2009)
Insurance: $(983)
$(13,069) gross operating expense

Net Operating Income: $12,976
Mortgage P&I: $(7965)
Cash Flow Before Taxes: $5,011
Cash-on-cash return: 11%
Equity Accrued: $2275
Total Return: $7286
Total ROI: 16%

We hit our cash flow number almost exactly at $104 per door while our ROI and total return came in a little under our projections, but pretty damn close. While not a screaming deal or a homerun, we were ecstatic with the results after one year. Having a quality property manager on our team helped make this a great hands-off investment that fit our family's lifestyle. Real estate investing really does work if you know your numbers and find a property that aligns with your goals! We hope to acquire several more small multi-families in the coming years.

Cheers and good luck in your investing!

Max

Lastly, new investors often ask what to estimate for expenses. After 1 year owning this property, we now have one year of data! These numbers are as a percentage of scheduled gross rents. I did not include the garage rents since the garage accrued no expenses and not every property has one.

Vacancy = 4%
Operating Expenses = 50% and breaks down as follows:
Property management: 10%
Fixed expenses (property tax, insurance, water, sewer, trash): 21%
Variable expenses (maintenance, repairs, lawn care, leasing fee, gas, electric, inspections): 19%

[Megan Greathouse]

Thanks for sharing, @Max Householder! You obviously bought a good investment and are doing a great job tracking and analyzing your progress. Funny how those expenses hit right on 50%! Do you think that will go up or down as you roll into year two? Was there deferred maintenance you had to work through in the first several months?

How did you guys decide to handle capex? Is that stuck in with your variable expenses, or do you pull that from your cash flow?

Congrats on a solid first year... and again, thanks for sharing!