Our First Investment Property: Year 1
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%