It’s time once again to do our annual rental property cash flow analysis.
To see 2014 and before, visit the link at the bottom of the post.
Did we make money this year? Is the investment still worth it? What needs to change in 2016? These questions and more will be answered in our annual review.
A little background…we purchased the property, a townhouse, back in 2007. It was our first home. We lived in for almost five years before deciding it was time for a bigger place with a yard. We moved across town to another neighborhood.
Instead of selling the house, we decided to try to keep it as a rental property. It’s been a complete DIY process for us. We prepared the house for rental, we listed it ourselves, we vetted tenants, we signed agreements, and we collect rent.
We’ve been through a couple of tenants over the last four years. Both have been a pleasure to work with.
As for 2015, it was a quiet year on the rental front. Our tenants agreed to another year (resigned in April). We dealt with minimal repairs and maintenance. We did, however, face significant increases in our property taxes. Home values are rising in this area. Overall that’s a positive. But it will require us to ask our tenants for more rent in 2016. That will be interesting. Alright, on to the numbers.
2015 Cash Flow Analysis
2015 Rent Collected
1,875.00 January Rent
1,875.00 February Rent
1,875.00 March Rent
1,875.00 April Rent
1,875.00 May Rent
1,875.00 June Rent
1,875.00 July Rent
1,875.00 August Rent
1,875.00 September Rent
1,875.00 October Rent
1,875.00 November Rent
1,875.00 December Rent
Total Rents Collected $22,500.00
$10,108.44 Mortgage Payments for 12 Months
6,157.48 Property Taxes (These went up by $1,500 in 2015!)
2,100.00 HOA Dues for 12 Months (It’s a townhouse, so this pays for lawn care, outside insurance, and the pool)
622.61 Insurance (Condo policy through Allstate)
353.00 Air Conditioning Repair
Total Expenses Paid $19,341.53
Total Cash Flow $3,158.47
In total, it was a great year. Revenue was solid. Expenses were reasonable and not unexpected. I do have some work to do when it comes to revisiting our insurance policy (it went up by +$100). And I’ll need to consider a rent increase due to the significant rise in property taxes.
If you look at what we originally “invested” in this property ($41,796) at the time we converted it to a rental, our annual return was 7.6%. Not bad.
Another way to look at this property though is to compare the return to the overall current cash value. Zillow says the unit is worth $290,250. We owe $146,225 on the property.
So if we sold it, we would free up $144,025 in cash (this ignores taxes on the sale and depreciation recapture). If you compare our annual cash flow to this value, you get a significantly smaller return of 2.2%.
Said another way, because we aren’t selling this property, we are settling for a small return on our money. Of course, there are other factors to consider, like the effect on taxes (which is very positive) and the diversification of our investments.
I don’t think we’ll be selling anytime soon. But I think it’s good to know where we stand, and I’m thankful we have options.
What do you think of the year we had? What would you do about the rental increase? How would you handle it? And what do you think of my secondary cash flow analysis?