Our Rental Properties Generated $40,399 in Rental Income in 2019. Here’s Our Actual Cash Flow.

 

For those looking to cut straight to the chase, our gross rent on 4 properties was $40,399. After expenses and mortgage/interest/property tax payments, our properties netted $6,673 in cash flow (i.e. profit).

I bet you were expecting a larger number there, right? So let’s dig into what happened…

Here’s my spreadsheet breaking down all income and expenses from our properties in 2019:

The quick summary of those numbers:

Gross rent: $40,399
Operating expenses: $19,328
Mortgage payments: $14,218
Cash flow: Income ($40,399) – Expenses ($19,328 + $14,218) = $6,853

If you’re curious, here’s how prior years stacked up in terms of both rental income and cash flow:

  • 2017: 2 properties, $11,299 in gross rent, $3,383 cash flow
  • 2018: 3 properties, $28,289 in gross rent, $6,471 cash flow

Going back to our 2019 performance – if your eyes are immediately drawn to the negative cash flow on the Memphis property, let me fill you in on what happened there.

My tenant decided to leave after only 1 year in that house 😞 For a single-family home, that’s a very short tenure.

For comparison, my Jacksonville and Indianapolis properties have had the same tenants for 3+ years, even after yearly increases in rent.

The prior owner had installed cheap vinyl floors in the kitchen, laundry room, and bathrooms, and they needed to be replaced after the tenant left. Instead of replacing it with more cheap vinyl we decided to install a sturdier, more tenant-proof flooring that will hopefully last a lot longer.

When you add in a new coat of paint plus a bunch of other small repairs and a full cleaning, things added up to just over $3,500. So that basically put me in the red for this property on the year. That’s rental property investing sometimes…

In terms of investing activity during 2019, the highlights were picking up property #4 (a 3 bed, 2 bath house in St. Louis that is currently renting for $1,050/mo) in August. We also decided to put all of our properties into a family trust.

 

Lifetime Performance

In less than 3 years since starting my journey as a real estate investor, here’s the lifetime performance of our properties through the end of 2019:

These numbers aren’t going to blow most people away, but what’s beautiful about all this is that this income comes in consistently and it’s almost completely passive. Outside of the times when we’re looking to acquire a new property, we spend 1-2 hours per month max managing everything. Even with the turn on the Memphis property, it didn’t equate to much work on our part.

Plus, what you also need to take into account is that my tenant is paying down my loan and several of my properties have appreciated. I recently completed my first cash-out refinance on one of my properties, which reduces my cash invested in the property and gave me some money to use towards my next property acquisition. I’ll be sharing more details around this cash-out refi in an upcoming post.

 

Top Takeaways From 2019

At the end of each year, I like to reflect and boil down a couple of key lessons. In 2019, my biggest takeaways were:

  1. Turnovers kill cash flow. This is why you’ll hear people say it’s not worth raising the rent if it means your tenant will leave. There are a lot of costs to make a rental rent-ready and you’re forgoing weeks/months of lost rent in between tenants.

  2. These numbers prove that buy and hold real estate isn’t a get rich quick play. When you’re a buy and hold investor, you’re looking to make good money over a long time horizon, not within a short period of time like some other investing strategies (fix and flip, wholesaling, etc.). Between this consistent cash flow (which should grow over time as rent grows over time), debt pay-down from my tenants, and (hopefully) some appreciation over time, I’m confident in the returns I’ll see over the long haul. My friend/co-worker/podcast co-host Tom Schneider has a saying that I’ve always like – “be long-term greedy”.

  3. The tax benefits of owning real estate will offset most, if not all, of my cash flow from being taxed. Depending on the year, we might even show a loss for tax purposes. This is where having a good CPA starts to really pay for itself.

  4. I’m ready to start taking a little more risk. The homes I’ve bought so far have been turnkey, meaning they recently had been recently rehabbed. Turnkey properties are typically less maintenance in the early years of ownership, but you also pay retail prices for them. My strategy has basically been to look for the best quality house that meets the 1% rule, but I’m ready to take on properties that require more work and can be bought at a larger discount. Don’t get me wrong, I think turnkey is a good way to get your feet wet with real estate investing. Especially when you’re investing in property thousands of miles away. But at some point, you have to start looking for homes in some type of distress if you really want to accelerate wealth building and cash flow.

  5. Using financing seems like a cash flow killer, but it actually allows you to increase your cash flow and grow your portfolio faster. Notice that we paid $14,217 in mortgage payments alone. If we owned these homes free and clear, that would have brought our cash flow to $20k+ for the year. But there’s a tradeoff. You can put $90k into one home or spread it over 3-4 and actually improve your upside. Here’s a simple example I shared on twitter recently to show you why I’m a fan of leverage:

While you're here...

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8 Responses

  1. Love this! Couple of questions:
    – Why put all the properties in a family trust?
    – Which tax benefits is your CPA using to offset the tax on cash flow?
    – Why is property insurance in on your Jacksonville property so much higher than the others? FL?
    – Also, why is property management fees higher on Jacksonville than Indi given the Indi property brought in more gross rent?

    1. Gooood questions.

      -Trust: All the properties were in my name and if something happens to me, I wanted to avoid probate and make it easy for the properties to transfer to my family without a bunch of red tape and BS

      -CPA: Mainly depreciation of the asset and expenses. This isn’t my area of expertise at all, so I defer to my CPA to minimize our tax exposure 🙂

      -Property insurance in FL: You have to get an insurance policy that covers you in case of hurricane/flooding when you buy a FL property, so insurance there is more expensive. I also took out an additional $1M policy out to protect myself further. All the other properties have that $1M liability coverage included. FL insurance is no fun, but it’s been one of the highest appreciating states over the last couple of years so that’s been nice.

      -Management fees: Mgmt fees are higher on the Jacksonville property because my tenant always pays late, so they get charged a late fee. The PM keeps a portion of that late fee so you’ll see it accounted for in the Property Management row.

  2. Hi Emil, curious what your goal is with the various markets. Are you just dipping your toes into multiple markets and will go more aggressive eventually in some? One thing I’ve learned is being in too many markets becomes a bit of a headache.

    I primarily invest in Memphis myself, via brrrr. I tried multiple markets but eventually realized I needed more focus to get to my $100k cash flow goal.

    1. Yeah exactly. I took a shotgun approach to start to check out a couple of different markets and now figuring out where I want to focus on. Honestly, I wouldn’t recommend most people follow the strategy I took. I’d say pick 1-2 markets and go deep there rather than spreading yourself thin across too many markets.Like you mentioned 🙂

  3. Thank you for talking the value of a good CPA. I am a CPA and am a heavy believer in real estate as a wealth growth strategy but sadly too often do I see people try to “do it themselves” on the tax front and give up thousands in savings a year. Add to that the loss of deduction when you maybe have to sell or exchange and the property and you are just shooting yourself in the foot. A good CPA can help also suggest other options like financing or depreciation strategies to maximize that tax free cash flow!

    1. People ask this question a lot and there’s never a quick/easy answer. It depends on what you’re looking for (cash flow, appreciation, some of both), your risk tolerance, etc. I would suggest doing your own research to get to answer that makes sense for your goals.

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