How We Used Our IRA to Invest in Real Estate [6 Month Follow-Up]

Not really even month 1, weeks 1 & 2 we received our first service calls. Broken A/C in unit B and leaky sink in Unit A. I initially thought...Fun Times Ahead! but quickly reminded myself we bought these units knowing repairs and deferred maintenance were on the forefront.

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In April of this year, I wrote the article How We Used Our IRA to Invest in Real Estate. Now that we're 6 months into owning this asset, time for a little follow-up.

Quick Recap: the Pensacola property we purchased with our SDIRA, had 2 trailers on it, both occupied, both with one year lease agreements with a record of paying on-time tenants. At such a low purchase price and high cash flow, I went in expecting $5-10k of deferred maintenance. Six months into it, I was dead on. Thanks to my awesome wife for taking this photo at closing and our little man for making sure we signed in all the right places.

Month 1 (April): Not really even month 1, weeks 1 & 2 we received our first service calls. Broken A/C in unit B and leaky sink in Unit A. I initially thought...Fun Times Ahead! but quickly reminded myself we bought these units knowing repairs and deferred maintenance were on the forefront.

Month 2 (May): no issues!

Month 3 (June): Unit B's AC goes out again. Upon further inspection a leaky coil resulted in replacing the entire unit. A home inspection by my Pensacola property management company revealed a faulty breaker box also on Unit B. Total costs for repairs = $4,100. That should be it for Unit B, as Unit A needs the real work.

Month 4 (July): Stove repair in Unit B: $104. Crickets on Unit A.

Month 5: (August): Oh boy, where to begin. A failed eviction on Unit A, charlie foxtrot of a situation. Nonetheless, I turned this thing around which resulted in me taking on managing the property myself, signing the existing tenant to a new lease - a lease that was mutually beneficial for the both of us. A great time to reiterate how important it is to have the right team members, especially a quality property manager.

Month 6 (Sept): Unit B, no issues. Finished up deferred repairs on Unit A (roof, bathroom floor, plumbing, windows, A/C...yea, a lot not done by the PM group): $2,293.

Before we get started on the #s, a few reminders:

• Last year (2015) my traditional IRA returned a whopping -10% (that's a negative, as in going the wrong way, ten percent) and my 401K returned 1.4%.
• Cash-on-cash return for this asset was projected to be >20%
• Even though these units were occupied, major repairs (>$500) were expected to bring these units up to code and thus added to the acquisition costs below.

Six months into our first SDIRA Pensacola Real Estate investment, here's how the #s breakdown:

• Total Acquisition Costs: (purchase price, closing costs, major repairs): $38,293
  • Purchase Price + Closing Costs: $31,900
  • Major Repairs: $6,393

• 6 Months of Operating Expenses: $2,001
  • Minor Maintenance & Repairs (6 months): $1,115
  • Property Management Fees (6 months): $231
  • Eviction Costs (6 months): $400
  • Insurance (6 months): $255

• Rent Revenue (6 months): $4,989

Cash-on-Cash Return (the return I'm comparing to my other investments) is calculated by dividing the annual before-tax cash flow by the acquisition costs. Since we don't have a year of expenses and revenues yet, I'm doubling what has transpired over the last 6 months for minor repairs, fees, insurance, and revenue to obtain the estimated annual cash flow.

• Expected Annualized Operating Expenses: $4,002
• Expected Annualized Revenue: $9,978
• Expected Annualized Cash Flow: $5,976

• Cash-on-Cash Return = $5,976 / $38,293 = 15.6%

So, not the expected >20% that we estimated, but a helluva lot better than a negative 10%! We'll see how all the #'s shake out in another 6 months when we can put estimates behind us and put a year of real world #s in our calculations.

Related Posts:

• How We Used our IRA to Invest in Real Estate (April 2016)
• Successful REI Takes a Team: Our Roster
• My First Eviction Turned Into Greater Cash Flow

Thanks for reading and if you have any questions, post a comment below or contact us.