It feels little weird still calling ourselves “first time landlords” in the title since we’ve been doing this for four years now. But I was intending these for any average Joe looking to get into rental properties as an example of the types of income and expenses you could expect, so I think I’ll stick with it.
I wasn’t sure what to expect when we first got into this. I was looking for a new type of investment beyond stocks and bonds and such. I wasn’t sure how “passive” this real estate investment would be, but decided to take the plunge anyway. And as I’m sure every landlord with a few properties will tell you, some months it really does seem like truly passive income! I don’t hear anything from my tenants, and they (mostly) are paying on time. But during other months, things go wrong, people move out, and unexpected things happen, and you think, “Why am I doing this again?”
Rental #1
Our first property is chugging along nicely. We bought it in the summer of 2015, so we are four years into our fifteen year mortgage, which is more than a quarter. Our longest-term tenants moved out, and instead of searching for new tenants, the couple in the upstairs apartment decided to move downstairs! That was very convenient for us, because there was some renovations we sorely needed to do upstairs. It is an old house with an odd layout, and at one point had two apartments upstairs. It was “converted” into one apartment by turning one kitchen into a laundry room at some point, but there were still two entrances and a wall separating them, meaning you’re always moving out from one side to get to the other side. This has always been a sticking point with getting it rented.
We hired a guy to take out a wall, and remove a doorway, so now it is just one space. The layout makes a lot more sense now. It did cost $3,300, but we were able to get it rented right away,. Spending that kind of money hurts, but just imagining how much longer it would take me to do it myself, and all of the lost rental income, convinces me that it was the right way to go.
Here’s our income statement for the first four years:
| Income Statement | 2016 | 2017 | 2018 | 2019 |
| Total Rental Income | $18,317 | $20,467 | $20,648 | $21,835 |
| Mortgage | ($9,099) | ($9,099) | ($7,583) | ($9,099) |
| HELOC Payments | ($1,476) | ($1,572) | ($1,310) | ($2,713) |
| Property Taxes | ($4,813) | ($5,024) | ($2,687) | ($5,368) |
| Insurance | ($3,961) | ($1,000) | ($3,307) | ($1,397) |
| Maintenance & Repairs | ($6,044) | ($1,575) | ($1,320) | ($4,477) |
| Utilities | ($1,987) | ($2,363) | ($2,369) | ($2,948) |
| Miscellaneous | ($35) | ($80) | ($0) | ($0) |
| Cash Profit | ($9,098) | ($248) | ($2,072) | ($4,167) |
| Mortgage & Loan Principal | $5,845 | $5,913 | $5,064 | $7,604 |
| Profit Plus Principal | ($3,253) | $5,667 | $7,136 | $3,437 |
So for those counting at home, that is basically a net $14,000 cash loss, but after accounting for equity, a $10,000 gain. It would be great to be cash flow positive here, but that has been difficult to pull off, the main culprits being the maintenance and repair bills, and the HELOC we took out for our down payment.
Rental #2
We bought our second rental property in the spring of 2018. So on our rental income statement last year, we had just a few months of activity to show. Since then, we’ve barely had a month when one unit was unoccupied. One unit has the original tenants. As for the other unit, our original tenant had to leave last September with almost no warning because of some tragic circumstances I won’t go into.
I let her out of the lease and had to start searching for new tenants in the slow fall season. This was not optimal, but by some miracle, we found a couple moving from across the country who were willing to rent the place without seeing it in person first. They drove for three or four days and literally showed up with their U-Haul one night to move in for October 1st. Whew!
One big difference between this and our first rental property is that we are not so attached to this one. The first time around, we made the mistake of looking for a place where we would want to live, instead of just finding a place other people would want to live. Though we’ve always looked for properties that need little or no work to get them rented, for our second property, I focused totally on the numbers. Sure, this is a place we would live, but most importantly, it looked like it had the best potential for profits compared to other houses on the market.
So the second property doesn’t have all of the fun details of the first property, but it was cheaper, has needed less maintenance, and with its simple, bright layout, has been easier to get rented out, and at a decent price. Plus the rent is lower since the heating and electricity are not included.
| Second Property | 2018 | 2019 |
| Rental Income | $3,450 | $20,363 |
| Mortgage | ($1,930) | ($7,718) |
| Property Taxes | ($1,820) | ($4,337) |
| Insurance | ($3,077) | $470 |
| Maintenance & Repairs | ($4,328) | ($815) |
| Utilities | ($375) | ($644) |
| Miscellaneous | ($80) | ($0) |
| Cash Profit | ($8,160) | $7,319 |
| Mortgage Principal | $1,028 | $4,224 |
| Profit Plus Principal | ($7,131) | $11,544 |
There are some very valuable lessons to be learned in these numbers. The second year at this property has been more profitable than any of the years at the first property. Just goes to show what happens when you take your feelings out of it and just focus on the numbers.
And mama mia! We are almost already cash flow positive here! In total, it is only a $800 cash loss and a $4,400 profit when including mortgage principal, so we are already on our way to being cash flow positive, which is more than I can say for the first property.
Hopefully these two keep chugging along as usual. We don’t plan on getting any more rental properties. Four units is enough.