by David | Feb 23, 2015 | My REI History
After owning real estate for about 6 months now, I’ve come to learn a few things and I wanted to share some thoughts with you:
Turtle speed.
With two rental properties, my monthly cash flow has been around $365 each month. That’s a 9% return on my investment which is a pretty good return. While a good return, this low amount of cash flow is teaching me that I need to continue spending time researching markets/properties and continue purchasing and investing in real estate. It also teaches me that staying in the single-family market is probably not a good idea. I need to grow and get into small multi-family units and also into larger apartment buildings. That’s probably the best way to “speed” things up and get larger amounts of monthly cash flow.
More isn’t better, it’s a must.
Owning two properties is great, but it’s not enough. There are a few reasons for that:
- The returns from two properties don’t meet my goals. My goal is to be able to retire early thanks to passive income from real estate. The cash flow from two properties (even after the mortgages are paid) is not enough to achieve that goal.
- While my properties are doing well so far (I haven’t had any problems with tenants or maintenance), in the future I will have expenses (maintenance, vacancy, etc.). If one of my two houses is vacant I’ll be at 50% vacancy which is very high and it will take a big bite out of my earnings. On the other hand, if I have ten units and two of them are vacant, my vacancy drops to 20% and the income from the other eight units will cover for the low performing units.
Staying focused.
I learned that staying focused on real estate investing isn’t easy! With a full-time job it’s not easy getting home after a long day and researching markets, networking, dealing with banks, title companies, etc. Furthermore, this isn’t something that can be done quickly. I don’t have the capital to buy 20 properties at this time; that will take several years, if not a decade. Because of this, I need to make sure I’m in the real estate game every day for the years to come. So, how can I stay focused? Well, there are a few things that help:
- Love it. I like real estate, which helps. More than that, I love the idea of early retirement. I love talking about it. I love sharing with others that there are possibilities beyond the 9-5 if they start thinking out-0f-the-box.
- Thinking about my “why.” I have a goal which is why I got into real estate. Whenever I feel like I don’t have energy, I just think about my “why,” or open this post (definitely helps to write it down!).
Looking at the future.
Last year I had a return of over 14% on my investment. Looking to the future, I can see that if both of my tenants leave at the end of their lease (August and December 2015), my returns are going to take a big hit since I’ll need to pay for getting the house ready for a new tenant and also for finding a new tenant. On the other hand, if I have 50 units and a handful of them leave each year, the hit on my total return will not hurt as much. This is, of course, the recurring theme: growth is the only way to achieve my goals!
by David | Feb 13, 2015 | Thoughts about REI
Since I can’t shut up about real estate investing, my friends often ask me why I don’t own my personal residence…
My wife and I currently rent. We live in a small, two-bedroom house which rents for under $1,000/month! We live in a great area so that price seems like a steal for us.Also, the cost of houses in our area is really high, so renting seemed like the better option for now. There are several other reasons why we decided to rent at this time:
Lower cost of living
If we were to purchase a house, our mortgage would be much higher than the cost of our rent. Beyond mortgage payments, there are additional expenses when owning a house (insurance, taxes, maintenance, etc.). So, our current situation allows us to save more money for real estate investing.
Best use of a down payment
Next, we all know (or should know) that purchasing a house to live in is not an investment. Owning a house does not provide cash flow as my investment properties do; in fact, owning a house would lead to negative cash flow. So if I have to choose between investing $100,000 – $200,000 in a few rental properties or investing in a house for my wife and I to live in, the first option sounds better.
Thinking about future needs
I would probably want to purchase something that would work for my family for the next decade or two at least. At this time, a two-bedroom house is enough for my wife and I, but that probably won’t be enough after we have a few kids. With renting, we always have the option of easily moving into a bigger place. If we were to purchase a house today, we would need to purchase a house that is much bigger than our current needs, which would mean even higher down payments and monthly payments.
Those are the main reasons we’ve opted to rent for ourselves and continue growing our investment properties. What are your reasons for making the same choice, or buying instead?
by David | Feb 1, 2015 | Income Report
During the month of January, I received two rent payments for the first time! I updated you about the purchase of my second property at the end of November and this month I received the December rent. So total rent collected this month was $1,520. Here’s a breakdown of each property:
House A
| Item |
Amount |
|---|
| Rent |
$795.00 |
| Mortgage |
-$316.67 |
| Insurance |
$0.00 |
| Taxes |
$0.00 |
| Management |
-$79.50 |
| Cash flow |
$398.83 |
House B
| Item |
Amount |
|---|
| Rent |
$725.00 |
| Mortgage |
-$413.49 |
| Insurance |
-$30.58 |
| Taxes |
-$72.68 |
| Management |
-$72.50 |
| Cash flow |
$135.75 |
No problems with either of my rentals. Smooth sailing for the first month of the year.
In my previous post, I discussed how additional payments can be made toward the principal of the mortgage, and in that way you can pay back the loan quicker. I have decided to round up the payment for house B, making my total payment is $600/month, which includes the mortgage payment, insurance, taxes, and an additional $83.25 for the principal. If I continue with these payments, I’ll have payed off the loan by October 2022 instead of January 2025 and save $3,490.
At this point, my REI bank account has a total of $1,579, which is the amount of cash flow I received over the past 6 months (including the additional principal expenses).
That’s about all there is to this month’s income report. Stay tuned for a look into my considerations for house C, next month’s income report, and more.
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