Let’s open the books … again.
Every month I reveal my income, expenses and bottom-line results from my real estate investments.
This month’s update is long overdue (it’s a 2-for-1!) because I’ve been trying (unsuccessfully) to write a deep-dive lesson to accompany this article.
I don’t want to merely publish numbers; I want to add insight like “how to hire a property manager” or “how to host an Open House.”
But writing these lessons takes time, and right now I’m focused on building the upcoming rental property investing course. So this month, there’s no accompanying lesson.
This update is just-the-facts. It’s a dose of financial voyeurism to spice up your workday. Here we go!
(New reader? Got questions? Read this first.)
In April, the rental properties brought in $9,158.53 after management fees, when applicable. Here’s the breakdown:
Unit 1, Triplex: $2,750
Unit 2, Triplex: $1,490
Unit 3, Triplex: $1,295
House #2: $850.50
House #3: $1,273
House #4: $1,500
House #5: $1,030
Ridiculously Tiny Interest From Bank: $0.03
April Income: $10,188.53
House #5 was the wild card — until now. This month we have a better property manager who (gasp!!) collected rent and late fees in a timely manner! Shocking! I’ve learned my lesson: Don’t drag your feet on firing a mediocre property manager.
Alright, so April’s gross income is north of $9k. What about expenses?
Mortgage: $3,524.03
Mortgage, Part II: $1,749.99
Insurance: $900
Home Depot: $25.89
Lawn Mowing: $27
April Expenses: $6,226.91
Yowza!! Those are higher expenses than usual, leading to a smaller bottom-line …
April Bottom Line: $3,931.62
Dun-dun-dunnnn! Little did I know that it’s about to get worse. Much worse. Muah-ha-ha-ha! Scroll down to witness the sordid May decline.
(Oh, and for those of you who are wondering:)
Nerdy Details That Only Nerds Care About: “Mortgage” is PITI on multiple properties; “Mortgage Part II” is three months of interest-only payments for House #3, covering March, April and May. “Insurance” represents a policy on House #3, which is non-escrowed. BTW, I respect that you’re reading a paragraph that calls you a “nerd” twice. Seriously. We’d be friends IRL.
As I emphasize in every report, money is meaningless without the context of time. There’s a HUGE difference between earning $X in 5 hours vs. 25 hours. That’s why I detail the time commitment below.
But before we get there —
Let’s peek at May’s income:
Unit 1: $2,750
Unit 2: $1,490
Unit 3: $1,295
House #2: $850.50
House #3: $1,273
House #4: $1,500
House #5: —
House #5 needed plumbing attention and our awesome property manager handled everything. She made all the arrangements and used May’s rent to pay the bill. Neither the income nor expense hit my bank account (hence the “–” above, since these reports only reflect cash hitting or escaping our bank account).
We didn’t spend a minute worrying about this. Heck yeah. An awesome property manager is the most underrated player in the game.
May Income: $9,158.50
Onto the spending …
Mortgage: $3524.03
Mortgage, Part II: $583.33
Water: $193
Water, Part II: $176.48
WTF: $0.91
WTF, Part II: $3.25
Lawn Mowing: $24
Contractor: $50
Insurance: $3,419
Ewwww. That’s a runaway list of expenses, leading to this whooping total —
May Expenses: $7,974
… resulting in the smallest bottom line since the advent of the Afford Anything income report.
May Bottom Line: $1,184.50
I’m damn glad I can share this with you. I explain why below. But first, for those of you who love trivia —
Nerdy Details Only for Extra-Nerdy-Nerds: “Mortgage” is PITI for several properties; “Mortgage, Part II” is an interest-only payment for June. “Water #1” covers one month (notice we didn’t pay a water bill in April); “Water #2” covers a different month.
“WTF” represents a random 91 cents that disappeared in some vague debit authorization. “WTF #2” is a random charge from the electric company. Huh??
How about that gargantuan insurance bill? Yeech! Long story short, this should’ve been paid from escrow, but a few wires got crossed along the way. Sh** got complicated. We’ll be getting an approx. $1,900 refund within the next few months, but we sent this payment to keep the policy current while our agent untangles the mess.
Wow, I can’t believe you slogged through this chunky block of minutia. Does your office block Facebook? Well, whatever your reason, here’s 35 seconds of hilarity as a thank-you. Watch it with the volume on.
Most people who promote real estate investing only reveal their top-line results; the oversized novelty checks. I don’t play that game.
I despise sugarcoated spin. I want you to see these two consecutive months when we spent almost every dime; when the bottom-line hugged the $1k – $3k range. This is the real deal. I don’t just show peaks; I show valleys, as well.
Real estate investing is a high-stakes game. The rewards are life-changing, but the path isn’t adorned with puppies and unicorns.
These income reports are intended to dispel myths at both extremes:
- Whiners: “I don’t want to wake up at 2 am to plunge toilets!”
- Shysters: “Accelerate from $0 to $999999 in the next 4 minutes — with no money down!”
Both notions are crazy-talk, and I hope these income reports can squash this insanity.
How Passive is This?
How much time did Will and I spend — combined — managing our investments?
April:
- 10 minutes – Texting our former next-door neighbor.
- 30 minutes — Change auto-pay to reflect our new bank account.
- 2 hours — Create an escrow account with our new bank, which required one of us to visit a branch in-person.
- 30 minutes — Email insurance agent.
- 30 minutes – Email different insurance agent.
April Total: 3 hours, 40 minutes
Not too shabby. How about May?
- 30 minutes — Will emails Unit #1 tenants about renewing their lease.
- 60 minutes — Will and I discuss the Unit #1 lease renewal. (The tenants want to renew into a two-year lease. We spent half an hour brainstorming how to price this request. The conversation took 30 minutes, but since I track both of our time, it’s 60 combined minutes between us.)
- 20 minutes — Will talks on the phone with a tenant requesting a double-cylinder deadbolt.
- 10 minutes — I order the deadbolt from Amazon. I use the same brand on every property, so I didn’t have to research anything. (The charge will appear on June’s report).
- 45 minutes — Renew our umbrella insurance, which requires emailing a bunch of documents and making a few quick calls.
- 30 minutes — Random text messages.
- 5 minutes — House #4 tenant calls to say he’s moving out at the end of his lease.
- 40 minutes — Will and I discuss renovation plans for House #4.
- 45 minutes — I call the contractor to discuss ideas and plans.
- 10 minutes — I call the House #4 tenant back to review everything with him.
May Total: 5 hours. (Well, it’s 4 hrs, 55 min. But hey, let’s round up.)
These investments require less than 1 hour per week. I spend more time reading Game of Thrones fan theories.
(Whoops. Am I not supposed to admit that? #NowWhosTheNerd?)
Epilogue
Drama ahead:
June’s income will be unremarkable. But in July, we’re leaping into no-holds-barred negative territory.
The House #4 tenant is moving out, and we’re embracing this opportunity to replace the home’s cabinets, countertops and flooring. We’ll rip out one wall and punch a hole in another. We’ll add a bar-height countertop to integrate the kitchen and dining. This is spatial re-invention at its best.
July’s cash flow will drop deep into the red, and I’m excited to reveal those numbers — plus photos showcasing the before-and-after results. Stay tuned!
____
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Thanks for keeping it real here and for my daily dose of a cat video fail! Too often we get blasted with “Look at how smart I am because I did all these things right and accounted for every single thing…blah blah blah.” When in reality, **it happens. I’m experiencing a prolonged vacancy myself…pushing 4 weeks now! Though it’s a good time to do some necessary upgrades just as you have planned. Looking forward to seeing your pics in the coming months.
Cat video fail!! You’ll get through that vacancy soon. Use it as an opportunity to make more upgrades. And if you start feeling glum, cat videos solve all. 🙂
lower your price. works every time.
We so appreciate your transparency (and hilarity – if that’s a word…it’s late) in these posts. We get the WTF charges on occasion too! Can’t wait to hear/see more about your upcoming renovation. The Shysters don’t explain you have to “spend money to make money” (and to upkeep the property!) at times too. Of course that would make sense… You and Will rock!
Thanks Vicki! If “hilarity” isn’t a word yet, it is now!! 🙂
we all do, some charges seem to just appear some months…
I really appreciate that you share the worms and the birds. It’s not all flying, but it is doable.
The extra nerdy details are the best part! Considering you’ve called me a nerd multiple times IRL, I wear that title as a badge of honor. Seriously though, I love the incredibly-detailed-but-not-boring updates. Keep it up 😀
My husband and I closed on a two-family house in Astoria, Queens a month ago and are brand-new to the investment property game. I discovered your wonderful blog at right time! Thanks for your transparency here; it helps me recognize that there are going to be some obstacles and setbacks along the way, but there will also be some peaks if we’re patient! Looking forward to more invaluable information from you!
That’s what I love to hear!! Welcome to this awesome and wacky little world of rental investing, Jenn. If you’d like to kill a random Friday night, dig back through the archives (on the Binge tab) and check out the last 5 years of my writing about this stuff. It’s a fun landscape, and I’ve learned A LOT over the years.
You have the right attitude — there will be peaks and valleys — and the most important quality you can develop is realistic expectations, patience, and a strong sense of the WHY that motivates property investing.
Thanks Jenn!
I love reading your report. Its very similar to my passive income but yours is on a much bigger scale. Im looking forward to bringing in that much and im hoping I can achieve that in the next few years.
One of my tenants put in a repair last week that a piece of the ceiling fell! LOL Cant wait to see how much that one costs to fix. 🙂
Dont get me wrong though, i love being a landlord and plan on retiring early because of my rental properties someday.
Awesome video – I needed that after being called a nerd repeatedly… ha!
With the house #4 remodel – are you going to be there in person to assist / verify the work? Or is it all going to be handled remotely?
Hey Brian,
I’m undecided. Two years ago I managed a renovation remotely — I was traveling nonstop, so I’d text specs to the contractor. Here are the before and after pictures.
For this one … I’m not sure. If this was a remove-and-replace job, I wouldn’t bother showing up in person (given that I have the highest trust in my contractor, due to the number of years we’ve worked together.) The only question mark in my mind, and the only reason I’m contemplating a visit, is due to the fact that we’re changing the floorplan/layout, which requires upfront planning and design. Thinking. Imagining. Visioning. That’s un-outsourceable.
My contractor sent me drawings and measurements, so I COULD manage everything from here, including planning/design. I don’t need to be there for the actual construction, but I’m wondering if spending a few days on-site could enhance the planning phase.
I guess the question is: how much do I want to optimize? Do I want this to be the “minimum viable renovation,” or do I want to physically look at the property in order to re-imagine a more creative concept (that’s still within budget)?
So … to answer your question, I don’t know yet. Those are the questions that are dancing through my mind right now. 🙂
Ooh. Kwikset SmartKey locks. I love those. It takes 5 minutes to rekey an entire house when a tenant moves out.
Paula, I think you made a math error; looks like you wrote down the same income for both months even though you made $1030 from House #5 in April and $0 from House #5 in May. So looks like you should be $1000 richer (and your bottom line isn’t as bad as it seems)!!!
Crap. You’re right.
#ThatFeelingInYourStomachWhenYouEmailAMathErrorTo30000People
Well … hey, the silver lining is that I erred against myself. I’ve exceeded even my own expectations! 🙂 I corrected the article, so it’s all good now. Thanks for letting me know!!
#ThisIsWhyINeedAnEditor
#OrMaybeABetterBrain
Loving the update. I really appreciate the behind the curtain look at owning rental property. Just makes me more and more excited for the course! That’s what you wanted all along right 😉
Nice monthly incomes and i like the way you presented the data.i need to get into the real estate ,but trying to figure whats the best way to get into it.
I look forward to reading these updates every month. I am planning on purchasing rental properties in the future, and I like seeing the real numbers and just how drastically they can fluctuate month-to-month. My husband and I are in the process of finishing paying off a huge amount of credit card debt and we are finally building up our savings, which will eventually be a down payment on a rental property. Thank you for another informative post, and I love your podcast as well!
Hi Paula,
I must have missed something, it looks like you’ve really been making progress on your properties. Looks like you’re doing really great!
I’m on a much lower level than you are, most of my houses only rent for $500/month. I bought Very cheap and did a lot of the work myself. I’m having to put my best on up for sale (it rents for $1100 since it’s waterfront and you can fish from the front door!). I hate to do it, but can’t afford it after being laid off since September (they called to tell me while I was down in Nicaragua, right after the Costa Rico workshop.
I’m watching how you’re progressing, I’m having to count on my properties now as they’re my ONLY income now and it looks like that’s how it’s going to be for a long time coming. I know lots of people think it’s not something they want to get involved in, but if you find a good manager it’s a lifesaver.
People will always need a place to live. Owning rental property is the best way I can see to ensure you can always support yourself. Depending on any job is NOT the way to go!
you are supposed to keep your best. sell a bad performer.
I love how little time you actually spent on your rentals. Real Estate investing scares me because I know nothing about it, but that passive income is calling my name more and more! Thanks for these reveal posts!
Hi Paula,
Are you planning to do a special one year report? It would be interesting to learn the lessons over a one year time frame.
Hi, I love this blog. Question for you. I am 65, yes, spent all my life in a cubicle…so sad. On to my retirement, my husband left me and I own a 4 bedroom home (free and clear) in a suburb in between DC and Annapolis. I currently rent a few rooms to help me pay the high property taxes. My question is should I sell and buy a rental property or turn my home into a duplex, live in part and rent part?
Thank you!!!
Fredericka,
Run the numbers for both. Also look into Air BNB you can rent rooms through their platform. Jumping into owning rental units isn’t for everyone. Ask yourself if you would be willing to evict tenants, or clean and advertise the units, also fix units that need repair. Best of luck.
Im located in a bedroom community between Annapolis, Md and Wash, DC. Someone told me that this type of neighborhood is not the best area for airbnb. I guess I could advertise at a low rate to attract folks. The income would be sporatic which is fine. I am retiring next year and want to move closer to kids, but cant decide fo sell this home and buy another or turn this home into a rental. Any ideas?
Do you pay yourself a monthly/quarterly/annual salary from your rental real estate profits? If so, just curious if it is a percentage of profits or how you determine what to pay yourself? If I recall, you also receive income from other sources so I was just curious if you are paying yourself anything out of your rental profits and how you determine what to pay yourself. I’m sure you have had to take a lot of time to build up cash reserves for repairs/maintenance/capital improvements, etc. From a financial/cash flow perspective, with the potential for large capital requirements for repairs and different remodel costs, etc., it seems like the hardest part would be deciding how much cash reserves to maintain and how much to pay yourself…
How do you juggle this part?
Hi Paula,
I was wondering If I could ask a few questions for my blog post about investing in Real Estate. I’m a Realtor and you’re an inspiration. I would love to feature you on my website/blog post.
1) How old were you when you purchased your first investment property?
2) What made you invest in Real Estate to begin with?
3) What is your favorite part about owning rentals?
4) How many Rentals do you own to date?
Thank you so much! I hope to hear from you soon!!!
It’s awesome to see people earn money on real estate rentals like you but I still think I prefer dividend income. Just way less hastle for probably lower returns, but I’m cool with that
Real estate investing has significantly higher returns than dividends, but there is a work component. Though, if you build your company right, the amount of ‘hands on’ time is equivalent to what you’re probably doing when you research stocks. The advantage of real estate (IMO, and I started w/ stocks but migrated to REI) is that you can buy with other people’s money, so you don’t need to save yours to begin w/. I own 7 units and only have about $8k of my own money tied up in the venture. I cash flow about $1,100/month on my own $8k. Yes, there are other loans tied up in the business, but it’s not my money that I’m earning money from.
After I’ve hit my FI number, I plan to diversify into stocks, bonds, etc just for some diversification and to reduce the volatility of my portfolio.
Paula, do your bottom line numbers include vacancy reserves, repair reserves and CapEx? I don’t see it teased out in your numbers, so I assume you aren’t setting those aside? Plan to cover w/ income from other sources?
Thanks for the clarification.
Hey Liam! I answer all of that in-depth in the FAQ HQ (just so I don’t repeat myself in every monthly report), so read that for the full details (here’s the link). Short answer: The keyword here is “cash flow,” meaning some months will be awesome, some mediocre and some horrifying, depending on renovations, vacancies, etc. Like I said: “July’s cash flow will drop deep into the red, and I’m excited to reveal those numbers!!” — thanks to heavy CapEx spending we’re planning for July!! 🙂
i have read your blog about cozy, and i have started using the program. I currently have 50 properties and testing the system with only 3.. I have found it difficult to transfer all of cozy data into my accounting program, quickbooks. What accounting program do you use?
I use Less Accounting, which links to my bank accounts and credit/debit card accounts. It’s super-easy. The flow is Cozy >> Bank Account >> Less Accounting. Everything is automated.
If you want to test out Less Accounting, enter the code “Afford Anything” under Settings >> Billing and they’ll give you a free month. (affiliate)
Hi Paula,
Awesome blog!!! I really enjoy reading it. Would you please share how do you keep track of everything? Do you have a spreadsheet or something similar that you could share? Or do you pull all of the numbers from less accounting software?
How do you track each property separately and every little detail?
Thanks
Hi Dani –
Spreadsheets are a terrible way to track expenses (IMHO), because these rely on human input. The moment that you forget to enter one deposit or expense, the spreadsheet breaks down. I recommend that you avoid any system that you need to babysit, and that can easily break down.
We collect 100% of the rent online. This gets automatically deposited in a business checking account. Less Accounting automatically tags every deposit based on property. The system knows, for example, that a deposit of $1,273 will be associated with House #3.
I’ve set up a business credit card. We make every purchase with that card, and Less Accounting automatically pulls the data into their system. Once a month, I login to glance over the expenses and add tags based on property. This takes about 10 minutes.
That’s it. It’s super-easy. 🙂
Hope that helps! 🙂
Its all about financial freedom! We do exactly what you are doing and I love it! We acquired 30 rentals by the young age of 30 and I just started my own blog on the adventures! I would love it if you checked it out!
http://www.littlemisslandlord.com
Rentals are the best form of passive income and they definitely cover my bills allowing us to live a great life! Keep on investing!
Hello there,
I wonder about your property management situation. Do you go through a property management company, or individual? Is it a percentage that is paid or a flat rate?
Thank you for your blog and keeping that damn sugar coating off of all of this.
Hi Almendra,
Professional property managers are required to hold a license with the state’s real estate commission. ONLY used a licensed property manager. Expect to pay roughly 8 to 10 percent of the rent.
Here’s an article on how to find and hire a property manager.
Hi,
Have you ever looked into investing in online properties or divident share investing?
Paula,
This is awesome!
You’re a great property guru. If you have time, drop me a note if you have any upcoming adventures.
Cheers,
Andrew
Hi Paula,
Given that you’re about 4 months behind at this point (June, July, August, and September), should I stop holding out hope that you’re going to keep doing these? As someone who expects to buy his first rental property next year, the transparency of this series was immensely valuable, but I certainly understand you’ve got other priorities, too.
Thanks.
Hi Scot – Paula has continued with it; she posted her income reports for June and July in this post: http://affordanything.com/2016/08/17/im-maximizing-rental-income-modern-renovation/
Hope that helps.
Hi Paula, I haven’t seen you post a rental income report or real estate-related pieces in a while. I heard in your recent podcast that you now have 7 rentals and a primary house. Are you no longer posting in your blog about real estate?