The Cash Flow Analysis for Our Rental Property at Year End 2016

It’s time once again to do our annual rental property cash flow analysis.

To see previous years, visit the link at the bottom of the post.

2016 was a pretty good year for our rental property.

It didn’t start out that way, though. Things were shaky in the first quarter. Home values and subsequently, property taxes, were rising, cutting into our monthly cash flow.

Then we found out we were losing our tenant, whom we loved. It wasn’t looking good.

In a bid to save the year and improve our cash flow going forward I took a chance and raised rent by $300 when I put the property back on the market.

It worked! Our first tenant application was an excellent one (great credit score and job status) and they were eager to sign a two-year lease at the increased level.

Cash Flow Analysis | Rental Property | Landlord | Real Estate Investment | Real Estate Investing

Let’s look at the numbers:

2016 Cash Flow Analysis

2016 Rent Collected

  • 1,875.00 January Rent
  • 1,875.00 February Rent
  • 1,875.00 March Rent
  • 1,875.00 April Rent
  • 1,125.00 May Rent (Tenant Moving Out)
  • 507.50 May Rent (New Tenant)
  • 2,175.00 June Rent
  • 2,175.00 July Rent
  • 2,175.00 August Rent
  • 2,175.00 September Rent
  • 2,175.00 October Rent
  • 2,175.00 November Rent
  • 2,175.00 December Rent

Total Rents Collected $24,357.50

Expenses Paid

  • $10,108.44 Mortgage Payments for 12 Months
  • 6,561.79 Property Taxes (These went up by $500 in 2016!)
  • 2,100.00 HOA Dues for 12 Months (It’s a townhouse, so this pays for lawn care, outside insurance, and the pool)
  • 2,319.00 Repairs (Air Conditioning, Garage Door, Plumbing, and Outdoor Lights)
  • 663.24 Maintenance (Turnover costs including deep cleaning, re-keying, and supplies)
  • 646.31 Insurance (Condo policy through Allstate)
  • 25.00 Move-In Gift

Total Expenses Paid $22,423.78

Total Cash Flow $1,933.72

If it hadn’t been for those semi-major repairs to the garage door, shower, and air conditioning, the property would have performed really well.

Not our best year ever. But getting the new, quality tenant at a much higher rent should mean good things for this next year.

Our cash flow through the years:

  • 2016: 1,933.72
  • 2015: 3,158.47
  • 2014: 2,104.44
  • 2013: 4,256.41
  • 2012: (53.93)

The increased home value (purchased for $205,000, now worth $323,000) has put us in an interesting situation. Even with the increased rent and cash flow, the amount of equity we have in the property now makes the investment look really poor on paper. $1,900 in annual cash flow for $180,000 in equity ($323,000 value per Zillow – $143,000 outstanding mortgage debt) means we’re earning ~1% for our efforts.

I recently talked with Eric from www.IdealREI.com he had an interesting suggestion: do a cash out refinance and use the funds for another financial goal. We could take the cash and buy another rental property, pay down the debt on our personal residence, or simply put it into the stock market. All would likely results in an annual return greater than 1%, don’t you think?

What do you think we should do?

Get 31 Tips to Improve Your Financial Life

Subscribe for free. Get my book (31 Days to Improve Your Financial Life), intro series, and monthly digest.

Powered by ConvertKit
Last Edited: February 13, 2017 @ 11:51 pmThe content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Philip Taylor

Philip Taylor, aka "PT", is a CPA, financial writer, podcaster, FinCon Founder, husband, and father of three. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or Google+. Listen to the new podcast, Masters of Money!

Comments

    Speak Your Mind

    *

  1. Hey PT,

    I love this post. My wife and I used to be real estate agents, my in-laws own rentals, and we want to buy our first rental in 1 to 2 years. So, I appreciate your analysis.

    To answer your question, I’d go with the refi and get another property. I’d go for that over the stock market. Is this your only rental? Which way are you leaning — rental, debt payments or stocks?

    Thanks for sharing,

    Dave

    • Hi David, thanks for commenting. Yes, this is our one and only. We’d like another at some point but don’t have the time to find something. I’m leaning towards transferring the debt over to the personal mortgage advanced payment as it’s the easiest, no-brainer move (once we have the cash out).

  2. Thanks PT for the mention!

    People look at ROI but often forget about ROE (return on equity). Like in your situation, you can have an amazing ROI but a terrible ROE.

    For a personal residence, I completely understand the idea of paying it down to live debt free. But, for a rental property or other investment, I believe it’s best to make equity work for you to maximize your returns.

  3. Hey PT – great article, and good job with your record keeping on your rental. With regard to pulling cash out versus repaying the mortgage, that just depends on your goal for this portion of your investments – because although you have wealth “tied up” in this home it’s still that – wealth, and it increases with every dollar you amortize on the mortgage principal. Also, the 50% appreciation you’ve had isn’t too shabby either. Keep up the good work, and thanks for sharing your thoughts with us.

  4. To be cash flow positive with some major expenses is a big win for rental real estate, especially to be cash flowing for several years in a row.

    I’d say go with the cash out refi but don’t feel like you need to take out all your equity. Only take out enough to the point that your payments will bring you to around cash flow balance but not negative (on a three-year average accounting for expenses). Apply the cash out to anything high interest and investments. If you’re considering adding more properties, make sure you have the time (and sanity) to manage the additional work. With so much of your wealth in property, maybe it would be better to diversify into more passive investments.

    Great post, love following these.

    • Thanks for the encouragement, Joseph. We definitely look at this whole project as a win. Heck, it’s allowed me to create some fun content for this blog too.

      Good conservative advice on the refi. About $30-40k is about all I could stomach. That would bring the equity down to $140k. With a $4k cash flow expected in ’17, we’d be looking at closer to ~3.0% return for this property.

  5. Great post Philip, thanks for sharing this, great read.

  6. DaveyPockets says:

    Man congrats! Just started year one of a real estate business myself and it is so cool to see you cash flowing! Don’t forget to factor in home office deductions, mileage on your car, half of on your meals, and depreciation and you return is much higher than 10%!!

  7. Philip — Those are good numbers!
    I have learned maybe the best investment is by getting a quality tenant, and it sounds like you did!
    — Phillip H.

  8. JD in Boerne This is a great question and one I intend to answer in detail when I file my taxes this year. Rental property gives you the added benefit of being able to subtract depreciation from the income. So my $4k profit will be more like a $2k loss for tax purposes once I subtract $6k in annual depreciation expense. The loss will help reduce my overall tax burden. It’s a huge win.

    • Congrats in a profitable rental property. For the purpose of income taxes, can you categorize mortgage payments as an expense?

      • Thanks, James. You can categorize the interest, insurance, and property tax portions of the mortgage payment as expense. But not the principal. Schedule E is where it all goes.

  9. JD in Boerne Your taxes are never more than what you earn. Assuming you have a 25% tax rate, if your net income on the rental property is $5,000 for the year, you would pay $1,250 in taxes and keep $3,750 in after-tax profit.

  10. JD in Boerne says:

    How does the rent you receive impact your taxable income? I understand that your expenses can be deducted, such as repairs and taxes on the property, but doesn’t the rent collected increase your income and essentially cost you money as you pay taxes on that income?

  11. DenverEric I hope so too, Eric. My first year wasn’t as good because I took a while to onboard the tenant. But I’m glad I took my time with that because it made year 2 (and beyond hopefully) really solid.

  12. I am about to rent out my Denver condo for the first time. I hope I end up with the same positive cash flow at the end of 2014 that you did for 2013!

  13. moneystepper says:

    Pretty good looking figures there – 10.2% return is certainly impressive

  14. Does your mortgage include principal payments? or is it an interest only?
     
    If it is a fully amortized loan then you are probably asset positive

  15. I think investing in rental property is a wise decision.  And it looks like it won’t take long until it is profitable for you. My husband and I would love to rent out property in the future as well as we think it’s a good way to diversify our investments, instead of having everything in mutual funds, etc.  Glad things are working out for you so far.

  16. @ptmoney Is that your first one? How have you enjoyed it so far? Does it make you more/less interested in doing more?

  17. This is great Phil:-)  I will pass it onto my son who has a basement suite rented out…..
    I’m sure he will find it interesting

  18. HullFinancial says:

    Personally, I aim to have a little more cash flow in my properties, as the insurance will drag you down a little further and you’ll probably continue to have some maintenance costs. Still, if you can be pretty close to CF breakeven pre-tax, then you’ll wind up in the good when it’s all said and done, since you’re not having to bump into the standard deduction for mortgage interest given that it’s a rental. It’s a heck of a lot better than selling for a loss. If you can hold onto it (and keep it rented out) long enough, then you’ll either a) pay off the mortgage and have nice positive CF, or get back to at least breakeven on the capital gain of the sale.
     
    A potential topic to cover, if you haven’t already, would be the depreciation recapture rules on the sale of a rental property. A lot of people aren’t aware of it and certainly don’t understand it.

    • @HullFinancial What have you found is your vacancy rate across your properties? Obviously I was affected by the 1.5 months (effectively 3 months if you extrapolate) vacancy. I’m hoping to improve upon that in 2013 and see a nice positive cash flow.
       
      Now don’t go giving me work to do. I studied those rules once, but you know I’ve since forgotten them. Seriously, thanks for the push.

      • HullFinancial says:

        @Philip Taylor On the Virginia property, our vacancy is 14%. We refused to let pets and opened it up in the late fall, when few people were looking to rent – or, at least, few people without pets. In our Texas properties, the rate is a touch below 8%. We have a great property manager who keeps them filled, and a great working relationship with her where she birddogs properties for us and has renters lined up as soon as we can close on the property and get it into move-in condition.