"A year+ of progress...or maybe not." Deal Analysis after 1 Year

Multi-Family and Apartment Investing
6yFollow

"A year+ of progress...or maybe not." Deal Analysis after 1 Year

Joe P.
Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes

Thought this would be fun to expose some of the financials and situations of my current rental.

I purchased a duplex in Gloucester City, NJ in July 2018; I've had it now for over a year.

Here are the initial numbers:

  • Purchase price: $102,900
  • Money-In: $31,728 (exact amount including closing costs)
  • Mortgage: $77,175 @ 5.625% over 30 years
  • Potential Monthly Rent: $1900 total (each unit is a 2 bedroom, 1 bath unit at $950 per month)

I put no money into the property as it showed very well (mistake 1), and set aside 10% of rent for CAPEX, 10% of rent for maintenance, 8% for vacancy, and wanted to self-manage. I also set aside $2050 for water bills , along with $450 in common electric. This is how the numbers started on day 1:

  • Income: $1900 per month
  • PITI: $925.84 (includes flood insurance)
  • CAPEX: $190 per month
  • Maint: $190 per month
  • Elect: $38 per month
  • Water: $170 per month
  • Expected monthly income: $386 ($193 per unit)
  • Return %: 14.60%

And here is where I am after a year plus:

  • Overall Cash Flow: -$3,414 (yes, that's negative)
  • Return %: -5.56%
  • Income: $18,370
  • All expenses under budget...except...
    • Total CAPEX in 1 year+: $6,118
    • Total Maint in 1 year+: $7,444

What I've Learned:

  • If you plan to start a property with no budget for items needing fixing, you will probably be really upset.
  • It could just be this property, but 10% for maintenance and 10% for CAPEX were completely blown out of the water. Its not even close how over-budget I am.
  • If you cannot, or will not, do any CAPEX/maintenance on your own -- 10% budget on each probably won't cut it.
  • Find yourself someone you can trust -- a landlord, a repairman, someone...and have them walk through a potential property. Look for the big ticket items, like water in a basement, heating/cooling units, appliances, bathroom and kitchen items in need of repair or replacement, windows/doors, PLUMBING, ELECTRICAL. If things look bad, assume the worst and budget for it.
  • Pay attention to big ticket items that might need fixing, repairing, replacement, etc. (see below)
  • Pay close attention to how prospective tenants act. I am finding that tenant mannerisms and how they interact with you is about 90% accurate of what to expect when they are in the dwelling.
  • If you have a job that makes far more income than your investments (to start) -- find yourself a great PM and pay them. Its far easier to manage your PM than manage your tenant, properties, repairmen, etc. 

Finally, in case you don't think things can go wrong...and I probably picked a lemon of a property...here's a list of replaced items:

In ONE YEAR, we replaced the upstairs tub, upstairs toilet, bathroom vanities in both bathrooms, upstairs oven, downstairs fridge, upstairs water heater, downstairs, water tank for heater furnace, building sewer checkvalve, and screen door downstairs. This doesn't include 2 very sad plumbing issues, one where the waste pipe was cracked and leaking (relatively small fix), and during a major rainstorm, part of the expel pipe was too heavy for its mount, and it just fell to the ground in the basement.

And finally...would I have done this if I knew I would have had the type of return (so far)? Abso-friggin-lutely. I hear too many people who are afraid to get involved and can't make the jump. I've had a negative return in a year plus. But I used good repair people and bought a lot of new items, and if we can even stay on budget with them, I think there are greener pastures ahead. My next property will involve far more due diligence, a higher "all-in budget", higher padded CAPEX/maintenance, and finally, management. I am in the investment business, not fielding calls from tenants at 11 PM for a leaky pipe business. And, remember always, this is a LONG-TERM investment...short losses can be made up over the course of time.

13Reply
136 views

Most Popular Reply

Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
6y
Originally posted by @Joe P.:

Thought this would be fun to expose some of the financials and situations of my current rental.

I purchased a duplex in Gloucester City, NJ in July 2018; I've had it now for over a year.

Here are the initial numbers:

  • Purchase price: $102,900
  • Money-In: $31,728 (exact amount including closing costs)
  • Mortgage: $77,175 @ 5.625% over 30 years
  • Potential Monthly Rent: $1900 total (each unit is a 2 bedroom, 1 bath unit at $950 per month)

I put no money into the property as it showed very well (mistake 1), and set aside 10% of rent for CAPEX, 10% of rent for maintenance, 8% for vacancy, and wanted to self-manage. I also set aside $2050 for water bills , along with $450 in common electric. This is how the numbers started on day 1:

  • Income: $1900 per month
  • PITI: $925.84 (includes flood insurance)
  • CAPEX: $190 per month
  • Maint: $190 per month
  • Elect: $38 per month
  • Water: $170 per month
  • Expected monthly income: $386 ($193 per unit)
  • Return %: 14.60%

And here is where I am after a year plus:

  • Overall Cash Flow: -$3,414 (yes, that's negative)
  • Return %: -5.56%
  • Income: $18,370
  • All expenses under budget...except...
    • Total CAPEX in 1 year+: $6,118
    • Total Maint in 1 year+: $7,444

What I've Learned:

  • If you plan to start a property with no budget for items needing fixing, you will probably be really upset.
  • It could just be this property, but 10% for maintenance and 10% for CAPEX were completely blown out of the water. Its not even close how over-budget I am.
  • If you cannot, or will not, do any CAPEX/maintenance on your own -- 10% budget on each probably won't cut it.
  • Find yourself someone you can trust -- a landlord, a repairman, someone...and have them walk through a potential property. Look for the big ticket items, like water in a basement, heating/cooling units, appliances, bathroom and kitchen items in need of repair or replacement, windows/doors, PLUMBING, ELECTRICAL. If things look bad, assume the worst and budget for it.
  • Pay attention to big ticket items that might need fixing, repairing, replacement, etc. (see below)
  • Pay close attention to how prospective tenants act. I am finding that tenant mannerisms and how they interact with you is about 90% accurate of what to expect when they are in the dwelling.
  • If you have a job that makes far more income than your investments (to start) -- find yourself a great PM and pay them. Its far easier to manage your PM than manage your tenant, properties, repairmen, etc. 

Finally, in case you don't think things can go wrong...and I probably picked a lemon of a property...here's a list of replaced items:

In ONE YEAR, we replaced the upstairs tub, upstairs toilet, bathroom vanities in both bathrooms, upstairs oven, downstairs fridge, upstairs water heater, downstairs, water tank for heater furnace, building sewer checkvalve, and screen door downstairs. This doesn't include 2 very sad plumbing issues, one where the waste pipe was cracked and leaking (relatively small fix), and during a major rainstorm, part of the expel pipe was too heavy for its mount, and it just fell to the ground in the basement.

And finally...would I have done this if I knew I would have had the type of return (so far)? Abso-friggin-lutely. I hear too many people who are afraid to get involved and can't make the jump. I've had a negative return in a year plus. But I used good repair people and bought a lot of new items, and if we can even stay on budget with them, I think there are greener pastures ahead. My next property will involve far more due diligence, a higher "all-in budget", higher padded CAPEX/maintenance, and finally, management. I am in the investment business, not fielding calls from tenants at 11 PM for a leaky pipe business. And, remember always, this is a LONG-TERM investment...short losses can be made up over the course of time.

 Awesome Joe! Even though you lost money on year 1 on this deal, I would say "Congratulations!"

You took action, you learned a lot, you still own this thing which will become cashflow positive eventually, and you've improved the property.

This is why when I acquire a building, I always improve it and at high quality...even if they're in C neighborhoods. Great looking building tends to attract great tenants and at the same time, the tenants also take care of them - so my maintenance and capex are actually low.

On a positive note, if your accountant is good, he/she can deduct all those capex and do accelerated depreciation or get all the expenses deducted on year 1 - so the IRS might actually OWE you money.

Again, congrats on this deal - and thanks for sharing - even though it's not a positive experience.

8Reply
See this reply in the discussion

27 Replies

Jump to latestLatest
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Joe P.:

    Thought this would be fun to expose some of the financials and situations of my current rental.

    I purchased a duplex in Gloucester City, NJ in July 2018; I've had it now for over a year.

    Here are the initial numbers:

    • Purchase price: $102,900
    • Money-In: $31,728 (exact amount including closing costs)
    • Mortgage: $77,175 @ 5.625% over 30 years
    • Potential Monthly Rent: $1900 total (each unit is a 2 bedroom, 1 bath unit at $950 per month)

    I put no money into the property as it showed very well (mistake 1), and set aside 10% of rent for CAPEX, 10% of rent for maintenance, 8% for vacancy, and wanted to self-manage. I also set aside $2050 for water bills , along with $450 in common electric. This is how the numbers started on day 1:

    • Income: $1900 per month
    • PITI: $925.84 (includes flood insurance)
    • CAPEX: $190 per month
    • Maint: $190 per month
    • Elect: $38 per month
    • Water: $170 per month
    • Expected monthly income: $386 ($193 per unit)
    • Return %: 14.60%

    And here is where I am after a year plus:

    • Overall Cash Flow: -$3,414 (yes, that's negative)
    • Return %: -5.56%
    • Income: $18,370
    • All expenses under budget...except...
      • Total CAPEX in 1 year+: $6,118
      • Total Maint in 1 year+: $7,444

    What I've Learned:

    • If you plan to start a property with no budget for items needing fixing, you will probably be really upset.
    • It could just be this property, but 10% for maintenance and 10% for CAPEX were completely blown out of the water. Its not even close how over-budget I am.
    • If you cannot, or will not, do any CAPEX/maintenance on your own -- 10% budget on each probably won't cut it.
    • Find yourself someone you can trust -- a landlord, a repairman, someone...and have them walk through a potential property. Look for the big ticket items, like water in a basement, heating/cooling units, appliances, bathroom and kitchen items in need of repair or replacement, windows/doors, PLUMBING, ELECTRICAL. If things look bad, assume the worst and budget for it.
    • Pay attention to big ticket items that might need fixing, repairing, replacement, etc. (see below)
    • Pay close attention to how prospective tenants act. I am finding that tenant mannerisms and how they interact with you is about 90% accurate of what to expect when they are in the dwelling.
    • If you have a job that makes far more income than your investments (to start) -- find yourself a great PM and pay them. Its far easier to manage your PM than manage your tenant, properties, repairmen, etc. 

    Finally, in case you don't think things can go wrong...and I probably picked a lemon of a property...here's a list of replaced items:

    In ONE YEAR, we replaced the upstairs tub, upstairs toilet, bathroom vanities in both bathrooms, upstairs oven, downstairs fridge, upstairs water heater, downstairs, water tank for heater furnace, building sewer checkvalve, and screen door downstairs. This doesn't include 2 very sad plumbing issues, one where the waste pipe was cracked and leaking (relatively small fix), and during a major rainstorm, part of the expel pipe was too heavy for its mount, and it just fell to the ground in the basement.

    And finally...would I have done this if I knew I would have had the type of return (so far)?         Abso-friggin-lutely. I hear too many people who are afraid to get involved and can't make the jump. I've had a negative return in a year plus. But I used good repair people and bought a lot of new items, and if we can even stay on budget with them, I think there are greener pastures ahead. My next property will involve far more due diligence, a higher "all-in budget", higher padded CAPEX/maintenance, and finally, management. I am in the investment business, not fielding calls from tenants at 11 PM for a leaky pipe business. And, remember always, this is a LONG-TERM investment...short losses can be made up over the course of time.

     Awesome Joe! Even though you lost money on year 1 on this deal, I would say "Congratulations!"

    You took action, you learned a lot, you still own this thing which will become cashflow positive eventually, and you've improved the property.

    This is why when I acquire a building, I always improve it and at high quality...even if they're in C neighborhoods. Great looking building tends to attract great tenants and at the same time, the tenants also take care of them - so my maintenance and capex are actually low.

    On a positive note, if your accountant is good, he/she can deduct all those capex and do accelerated depreciation or get all the expenses deducted on year 1 - so the IRS might actually OWE you money.

    Again, congrats on this deal - and thanks for sharing - even though it's not a positive experience.

    8Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    6y

    @Michael Ealy thanks for the feedback! I agree with everything you said -- personally I'm not a fan of landlords who keep places like trash. I want to have a nice, clean, and well-maintained unit. And I want the same in my tenants.

    All-in-all, I wouldn't say it hasn't been positive. As you mentioned the learnings and the action are there, so I can improve upon this and make better decisions in the future. I've also learned a LOT about myself and how I want to go forward on the next property -- e.g. a good property manager is a MUST for me.

    I went into this thinking I wanted to manage it, and maybe I do if things are quiet. But every. single. time. something came up for my tenant, it would drive me nuts. Small things, big things...didn't matter. And I wasn't upset about them or what was wrong, it just felt like something completely different from my actual job, and that annoyed me. I run technical teams in my career and thoroughly enjoy it, so having to deal with a tenant complaint and needing to work with a repair man, for example, was just out of the box for me. So, I find it more pleasant on my psyche to work with a property manager instead of tenants/repair-people directly. Just my own needs/desires.

    0Reply
  • John Chapman
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    6y

    @Joe P. this is a very well written and transparent post.  Everything you describe is very, very typical and, if it hadn't happened this first year, it would have happened in some other year.  I commend you for being honest about your experience as so many others only talk about the upsides of investing.  While I personally would not use a PM if I was local, your reasoning for hiring one is sound and articulate.  It also shows remarkable self awareness of what you're good at and what you want to do.  It sounds like you handled everything correctly in terms of repairs, and I suspect you will enjoy many future years of healthy cash flow.

    If it's any consolation, I bought a fourplex that ate my lunch for the first couple of years (repairs, bad tenants, you name it.)  I still have negative feelings about that building it was so traumatic, but once I got past the bumps and learned a few things, it's been far and away my most profitable investment from a cash flow perspective.  I hate the building but love the investment so I can't bring myself to get rid of it.  

    1Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    6y

    @John Chapman thanks for responding, John. I find people tend to look at things in a rose-colored-glasses way. For better or for worse, my approach has been the numbers and the process. Either they are working, or they are not.

    I noticed my own emotions becoming part of the problem especially during the summer time. Busy with work, busy with life, then on a vacation and having to deal with seemingly minor problems at the duplex. It made me...angry. I finally said enough is enough -- I have to have someone who can handle this for me. It'll cost me money, sure, but the goal was never to be on the ground forever.

    This has also changed the way I respond to other investors when they ask about deal analysis. I tell them they need to be really careful with current condition -- chances are they will pay now (at purchase), or they will pay later (over the course of use, typically Y1). I wish I had the money set-aside and part of my "initial investment" to take care of these things. It would have lowered my rate of return, sure, but the optics of it would have made a lot more sense. Then I might have a cash flow positive return, albeit at a much lower % than expected. Either way...you pay for it. :)

    Sorry to hear about your fourplex, but I understand the feeling. I am at the point where I can't stand looking at the building anymore...but assuming I have cleared the initial hurdle, it should make me money. Maybe its like a stock in a company you loathe, but it makes you money...you can't part with it. :)

    1Reply
  • Tj Hines
    Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
    6y

    @Joe P. thanks for sharing your experiences with us. This is truly what you call the school of hard knocks. Coming into a deal anyone should heavily consider putting reserves aside for capex and or immediate unexpected turnover. One deal has taught about everything you need to do and be more better prepared for the next one.

    I think the positive side is as you already said there will be greener pastures ahead, now that a lot of major capex items have been taken care of. With good solid tenants there's a good possibility you will be able to come from out of the red into the black. Good luck with your endeavors.

    1Reply
  • Tim Rostro
    Rental Property Investor · Centralia, WA · Member since 2017 · 75 posts · 85 votes
    6y

    @Joe P. Thanks for sharing.  I've been in that situation as well as I have had to fix and improve all my properties since acquiring them.  I pretty much consider Year One of any property now a lost year as I am dealing with repairs and maintenance issues that weren't addressed from the previous owner even though I had a home inspection done.  

    I'm closing in on this duplex this Thursday, October 31 (Halloween, how ironic) and hoping that the home re-inspection tomorrow will not be a horror show compared to the initial one.  However, I know that the moment the inks dries on that mortgage contract, stuff happens.  I'm going to be fixing this property for the next 6 months and make it more livable than it already is.  There are some good years and there are some bad years.  As you mentioned on your post, "this is a LONG-TERM investment...short losses can be made up over the course of time."  I absolutely agree, this is for the long haul.  

    1Reply
  • Crystal An
    Rental Property Investor · San Jose, CA · Member since 2019 · 15 posts · 14 votes
    6y

    @Joe P. Thanks for sharing your experience and being so transparent! Did you have anyone do an inspection prior to purchasing? Or if you did get one, was the inspection report not detailed enough to highlight the potential problems? 

    And a question to you or anyone in this forum -- 

    When estimating capex and repair costs, is it better to: 

    (1) Have an agent + contractor walk through the property and perform an estimate then

    (2) Get a third party inspection report, and then send it to contractors for estimates? 

    2Reply
  • Neil Pradhanang
    Realtor · Paramus, NJ · Member since 2019 · 71 posts · 35 votes
    6y

    @Crystal An I think it’s best to have as many sets of eyes on a property and what kind of work that needs to be addressed before actually purchasing a home that needs work. 1/2 contractors and 1/2 inspectors at the very least if the investor is inexperienced.

    2Reply
  • Bjorik Mutize
    Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
    6y

    Thanks for sharing and this is a great deal analysis. Next property you are going to crush it with focus on your going in's and going out's. At what month within the year did you find yourself going negative?

    1Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    6y

    @Tj Hines - you know what's funny, a lot of folks have said its a tough situation, school of hard knocks, etc -- it hasn't been profitable (yet), but we also got a nicer tax return last year and I'm still considering it as a positive experience. I've already linked up with a buddy of mine who has done some work for me, and the next property will have him walking through it to tell me whats good and what's not. Feeling cautiously optimistic about the future...

    @Tim Rostro home inspections aren't everything! There were a few things listed like cracking in the roof repair, and really, the major CAPEX has had nothing to do with what was listed on home inspection. The report indicated there was evidence of water in the basement, which has been a fleeting issue for us, but likely since resolved by a cheap solution -- I found a corrugated rubber mat company that created a thick/heavy mat built to cover flat bilco basement doors. It's gigantic, it was $150 bucks, but it really solved most of the issue with water coming through those doors. Good luck with your new duplex! If I can make two recommendations - if you aren't married/tied up, try living in a unit for a month to find problems as you "live through it" and then can find the items to repair, or do a walkthrough with an experienced investor or handyman willing to check out every nook and cranny. The home inspection is helpful but I find its only a small piece of the overall puzzle.

    @Crystal An - Hi Crystal -- yes I had a home inspection and the only thing noted from that I have had maintenance/CAPEX issues is the basement water issue, which has been (I believe) 99% resolved with some concrete parging around the perimeter of the house, a newer/better sump install, and covering flat bilco doors with a very heavy rubber mat to prevent water from coming through. Here's what I would say in general -- most of my problems have been needing to replace things, like bathroom vanities, toilets, the upstairs tub and surround, water issues in the basement...walk through yourself and with an experienced investor to try and find things that need repair/replace early, and then pad your CAPEX/maintenance up early on (in addition to a planned initial improvement budget) so you are prepared to weather the storm.

    I will tell you, I walked through with an inspector, myself, my agent...nothing is a true test of the unit(s) until they are lived in. Turning on the faucet once may not tell you anything, but turning it on 3 times a day for 30 days in a row will definitely tell you something.

    @Bjorik Mutize its funny -- I am not tracking month over month, but I have spent about almost $4000 just in the last month as we turned over our upstairs unit. Here's a list of costs/replacement items and cost:

    • $415 for a new vanity, sink, and mirror, including install costs.
    • $1500 for a new tub, surround, and faucets, including install costs.
    • $800 for various drywall demo and then repairs relating to the tub and needing to open walls up
    • $545 for CITY costs, including rental registration fees, permit, and inspection (budgeted)
    • $650 for an electrical repair to the supply line (outer layer was frayed and we didn't pass inspection)
    • $150 in fees for my new PM -- totally worth the cost since she found the folks who worked on the property

    My upstairs unit has also been vacant since September 1 (just moved a tenant in this past weekend), so basically two months of unexpected vacancy. So it behooves every investor to understand turnover costs and be realistic in their costs.

    I see people trying to buy duplexes and they are setting aside like $100 for CAPEX/maintenance. Yeah...ok....good luck with that. That assumes you are creating another JOB for yourself, because that might cover your supply costs, but not labor costs, on ANYTHING going wrong. I can't install tubs, I can't repair drywall, hell I can barely hang a mirror...so being realistic in costs (and it turns out I should be more realistic) is key.

    Because our rents went up $50 each unit, I am directing most of that to an increased CAPEX/maintenance budget for 2020. And I hope that I am pleasantly surprised of the costs (for once) in 2020 accordingly. :)

    2Reply
  • Dustin P.
    Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
    6y

    @Joe P. Thank you for sharing your story! And congratulations on your first investment. I'm willing to bet that now that a lot of the issues are fixed that you will show cash flow this next year. Plus the rent increase doesn't hurt!

    1Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @Joe P.,

    Thanks for sharing a brutally honest perspective.  You're right that things can/do go wrong, and until you get a certain amount of experience under your belt it's hard to know what all the facts and figures really are.

    I invest in Class C SFHs mostly, and as a result have long held with the 2% Rent to "All in" cost ratio rule of investing, combined with the 50% expense rule.  Those are is:

    1) Monthly rent divided by "All in" to Purchase, Close, Hold and Rehab must be 2% or higher.  Any property that's less than this fails to achieve positive cash flow unless you have a very high (30% or better) down payment.

    2) 50% of gross rent (rented or not!) covers your actual expenses. My numbers over 14 years look like this: Maintenance (12-17% in a normal year, spiked as high as 25% one year), Management (10% - pay yourself or pay someone else; don't work for free), Vacancy (5%), CapEx (5%), Misc (3%). Now if you're clever at math you see those numbers only equal 37-40%, but I include a "Go to #ell" budget of 10%, which is what I fall back on when everything blows up at once and/or just nickles and dimes me to death.

    I know there are many folks who swear they can make money on SFHs/duplexes with 1% of "all in" cost to rent ratios and 25% expenses budget.  I'd love to see copies of their Schedule Es for 10 years running is all I can say.  I seriously doubt they're making money.  With SFHs you get no scale of efficiency/economy and no value-add beyond rehab that tenants tear up over time, so to me anything less than the 2% rule over the long term is going to show a loss. 

    I don't know exactly what kind of duplex you have (or what "Class" it would be), but keep this in mind: nicer SFH's / small "plexes" demand rehab and updating about once every 10 years, and may costs as much as $10,000 - $20,000. We're not even talking about roofs or HVACs...we're talking kitchen and bathroom remodels! My little Class C "charming" houses do not require updating. Clean, safe, and functional is our goal. My guess is a lot of SFH investors are not being honest with their maintenance/CapEx outlay and are eating their golden gooses one bite at a time. Then every 10 years or so they have to "pull out cash" to do the expensive updates.

    I didn't make much money my first 5 years in the biz.  I self-managed and did a lot of my own maintenance.  Bleh!  Like you I'm not that good at maintenance, and I want to enjoy my family.  I still self-manage because I enjoy it (mostly) and the pay is pretty good!  

    One thing I learned is 30 year loans take a loooooooong time to achieve any equity from amortization / loan pay-down.  Having done a couple of those when I started this biz, I highly recommend never going above a 20-year term.  If it can't pay for itself that quickly, it's not a good deal.  15 year or less is better, and that's all I'm doing now as I refi out of those crazy 30-year term deals.  Unless your market is seeing nutty appreciation and you plan to cash out quickly.  

    Why 20 year terms?  That's about the maximum life you can expect from an HVAC system, and getting close to the time when many roofs start to have leaks and/or need to be replaced.  At least if you do those item brand new at purchase time, then down the road you should be in a good cash flow position to replace things.  Then by year 23 or so you have an almost new home ready to start paying you some real money.

    A few thoughts to chew on as you move forward.  Good luck!

    3Reply
  • Elizabeth Flowers
    Member since 2019 · 9 posts · 6 votes
    6y

    Very useful. Thank you. I hope you make your money back and much more!

    1Reply
  • Tj Hines
    Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
    6y

    @Joe P. thats a great attitude to have

    1Reply
  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    6y

    @Joe P.

    Thanks for the post. What I do is budget repairing all major systems in my calculation because your inspector will not catch everything.

    Once I take possession and I can go through it with a fine tooth comb I make sure all major systems are up to date as long with cosmetic ones. By pre budgeting my numbers don’t get out of whack.

    I see too many people trying to show strong it. I would rather over budget on the front end than be surprised on the back end. That works for me.

    Congratulations on your rental I hope you continue your journey with much success.

    2Reply
  • Dan Tangen
    Rental Property Investor · MN · Member since 2018 · 4 posts · 1 vote
    6y

    @Joe P. Thanks for sharing. Sorry for your tough year but I like your forward looking attitude. 

    Good job on overcoming the hardships.

    Dan

    1Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    6y

    @Joe P.

    What you said at the end "this is a LONG-TERM investment...short losses can be made up over the course of time." is GOLDEN!

    This is the only way to think of Real Estate Investing and stay sane!

    Others looking for a Get Rich Quick Scheme should try BitCoin... 😬😬😬

    1Reply
  • Felicia Elliott
    Rental Property Investor · Portsmouth, VA · Member since 2016 · 38 posts · 13 votes
    6y

    I agree it’s a great analysis however can you explain the variances in rental income projected vs actual.  What happened and where did you go wrong. Thanks

    1Reply
  • Andy Freeman
    Rental Property Investor · Orange County, CA · Member since 2019 · 37 posts · 23 votes
    6y

    Definitely not a failure if you are in it for the long haul. Also, is there a way you can bill the water back to the tenant and/or the electric bill to help increase the cash flow some?

    1Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    6y

    @Andy Freeman thanks...I'd argue my rents at the moment are in-line with the quality of the rental and location, and I just increased $50 per month for both units, so I'm hesitant to bill-back. The water is the real concern, its just shy of $200 per quarter for water (each unit!) and another 177 per quarter for sewer for the building. Maybe in Y3 it's an option to avoid rent increases but put more onus on the tenant.

    @Felicia Elliott thanks, I made a mistake my overall rents for a year plus were 26k; I forgot to add my partial rents received from 2018. Really the only variances in rent were due to vacancy in my upstairs unit (2 months).

    @Ola Dantis thanks for weighing in...and agreed!

    @Dan Tangen thanks for weighing in...now go tell all the new folks what REAL costs are like! :D

    @Damaso Bautista thanks, I think the biggest mistake people make is lying to themselves. They overstate their value in a deal, understate their expenses, overstate the rental market, etc -- the real deals appear when you've run conservative numbers over and over again, and it still looks promising. Then people puff out their chest and call themselves an investor while losing money -- this is a business. The numbers are what they are. And yes, its been a rough go, but seeing the big picture tells me I'm down about 3k, with a lot of recent maintenance/CAPEX, and an opportunity to hit the black if we can control costs with tenants in place.

    @Tj Hines - thanks for weighing in!

    @Elizabeth Flowers - thanks and I hope so too!

    @Erik W. - fantastic info, and I believe I'm going to take that into my next deal. I'd consider this a C-level property ($500 per month, per bedroom, anything less and I think you're in D category. Higher rents command C+/B-) and the turnover and age of the properties tells me 2% is the way to go. And I'd love to see those folks numbers, too. Buying at 103k and an initial monthly income of $1900, I thought I'd hit a gold mine. Well, maybe in a few years, but I'm paying for deferred maintenance and CAPEX now. I'll have to consider shorter loans...I'm 33 so the idea of a 30 year doesn't totally scare me, as real appreciation can take years to accumulate (as can equity) and by the time they are paid off, I'll be close to retirement age. It's crazy to even think of retirement right now, but by then assuming I still have the property, its going to be an extra source of income...diversification.

    @Dustin P. - thanks and I hope so! I wanted to provide the year-in-plus update to A) level set myself on how things have really gone, B) see where I can improve for the next property, and C) show people the real deal. I can link back to this thread to tell people here's a real world example, with real dollars, and how it can look when you blow out your budgets, unexpectedly.

    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    I’m not surprised because the first year is required time to just stabilize the property and get it up where it needs to be . A lot of my junk didn’t make me a penny till after a years time this is a long term play . I wonder what your taxes are over there in dirty jersey ? Probably astronomical I assume

    1Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    6y

    @Dennis M. taxes are 4200 per year, which is astronomically high compared to the real estate pricing. My taxes in Philly are 1200 less for a house worth 3x as much. But this town is not as bad as a few towns over where I've seen SFH under 150k for 7,000 or 8,000 a year in property taxes.

    As an aside, I would love to audit these towns to see where the dollars are going. Obviously we want to handle education, emergency services, and infrastructure needs...but I'd like to see the breakdown for sure. :)

    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y
    Originally posted by @Joe P.:

    @Dennis M. taxes are 4200 per year, which is astronomically high compared to the real estate pricing. My taxes in Philly are 1200 less for a house worth 3x as much. But this town is not as bad as a few towns over where I've seen SFH under 150k for 7,000 or 8,000 a year in property taxes.

    As an aside, I would love to audit these towns to see where the dollars are going. Obviously we want to handle education, emergency services, and infrastructure needs...but I'd like to see the breakdown for sure. :)

    In Jersey I can assure you most of it’s going to the corrupt politicians unfortunately 

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    Great break down of the numbers.  Some times everything happens at once and you have to roll with it.  As for taxes, I can't imagine paying $7-8000 for property taxes, let alone on a home worth $150K.

    1Reply
  • Danny RandazzoPro Member
    Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
    6y

    @Joe P. Great post. It sounds like you’ve learned a lot through the process

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free