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.
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
- $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?