I apologize for not getting this rental cash flow post up sooner. I was away in Marco Island Florida looking at potential investment properties and doing some planning for the future of the Corporation. As always, it is great to be back home. As winter starts to set in, I think about how cold it will eventually be.
Rental Cash Flow
The month was great. I left for Florida early on 9/3, so I wanted to make sure all my rents were not only collected, but in the bank before I left. I did not tell any of my tenants that I would be gone. My normal rent reminder text went out on 8/28. Any tenants with rents not paid by ~5 PM on the first, I send another text. The remaining rents were in the rent boxes by the morning of 9/2.
I have 25 units to collect from. One unit is vacant, and one unit paid on the fifth, and I had 23 of 24 possible rents deposited in the bank by the second of September. Once again, when you have great tenants, and a viable system, it is easy.
No one has given me notice to move, so I should be all set until at least 10/31. I do have a suspicion that one family will be leaving based on the questions they have asked.
Long Distance Property Management
While I was in Florida, I had to do some long distance property management. No issues from tenants were needed to be responded to, but a couple did inquire about when garbage day was. With the Labor Day holiday, garbage was delayed one day. I typically send a text message out a few days before to notify them of these things, but I forgot this time. So, I had a couple of texts to answer, and that was all.
The night before I left, at ~9 PM, a tenant emailed about the common area washing machine not working. I don’t mind the notifications, but since I was leaving early in the morning, it was a bit nerve-racking. I quickly drove over to the apartment to look at it. I had only dashes in the display of the washer. I opened the washer operator box, and an F20 error code came up.
I quickly Googled the error with my smart phone, and it came back as a water starvation issue. I started the washing machine, and the machine quit soon after it requested water. So, I checked the water supply lines, and the valves were turned off. Someone must have washed their car using the washing machine hookups. I turned on the water, and all was well. I was back home in less than 30 minutes after I left. The fix was ‘free’. If I was not around, a plumber would have charged a bit more.
Rental Expenses
Major Remodel ~$10,000
When I asked my Section 8 tenant to move out, I knew it would be a lot of work. Some work was due to wear and tear, some work due to tenant damage, and some work due to necessary upgrades. I am replacing the kitchen cabinets, putting tile on the bathroom floor, new tub surround, new shower valve, new light fixtures throughout, new vanity, new kitchen and bath faucets, new appliances (Refrigerator, Dishwasher, range, microwave), new laminate floors throughout, painting ceilings and replacing paneling with sheetrock, new air duct covers, new suspended ceiling tiles, and adding closets in two bedrooms. Prior to this, I used cheap wardrobe units to get by any closet requirements. Between every tenant, the wardrobe unit needed to be replaced. With the new closets, it will look better and be permanent.
With vacancy costs included, this remodel will cost ~$10K.
New Range
When I did a walkthrough at one of my recent turnovers, I noticed the range indicated the oven door was locked. A bit of troubleshooting, and I knew it was either the over door lock, or the oven control board. I had a renter moving in, I did not have time to order the part and wait. If the part was not the issue, I was going to be late delivering the apartment, or have to deliver it without a range. I opted for a new range, identical to the old one. When the new stove came, I could do additional troubleshooting with parts from the new stove. I confirmed it was the oven control board, and ordered a new one. Cost $49, free shipping, off eBay.
Leaking Faucet
The same apartment that I purchased a stove for, needed a faucet fix. There was a drip that could not be stopped by turning off the faucet. It is often easier to just swap a faucet, than attempt to replace a faucet cartridge. So, I purchased a new faucet, and the old one will be fixed at my convenience, in my own garage, and put in the unit I am remodeling. Cost ~$69
Main Drain Line Clogged
In one of my four-plexes, I had a main drain line that needed to be cleared out. The floor drain was bubbling up, and water draining was stopped. I had this issue a few years ago with this building. I immediately shut the water off in the building so that no more water would flood the floor. I called the drain cleaners and they came out about two hours after I called. Luckily it was a cement floor.
The problem was a grease blockage, probably caused by a main drain line with a slight dip in the line. After a drain line is set when the building is built, the ground can settle and cause a slight dip in the drain line that gets ‘stuff’ settling in the dip. After a period of time, it becomes a clog.
It could happen to any rental, and ‘investors’ who buy a property with only a few dollars to spare every month would be in the red due to a single expense such as this. If you started with negative cash flow, it really stings. The cost of this was $238.
Carpet Cleaned in all Common Areas
I had the carpets cleaned in all five my 4-plexes. There are four half flights of stairs, plus four landing areas. I generally have them professionally cleaned every year. This is a necessary expense, and one that may not be accounted for when buying a multi-family building. The carpets look fresh again, and regular vacuuming is all that is needed for a while. This expense was $375.
October Property Taxes Coming Due
I still have three mortgages that are being paid with taxes escrowed in the payment, the other five properties I own outright and have to pay directly. Once you have paid off a mortgage, you realize how much tax is actually being paid. In Minnesota, we pay property taxes two times a year. Once by May 15th, and the other payment by October 15th. I will queue up the check to be paid on 10/10, and use October rent collections to cover the payment. It will be about $9,500 to be paid. And that amount is paid two times a year, ouch!
What are your major expenses coming up?
Your detailed renting process must really work if you have that many great tenants. We are having a privacy fence installed around the backyard of our rental home. Getting bids for it right now.
It’s all a matter of getting great tenants, and knowing how to get them. Knowing what a good tenant is, and how to identify them, is a crucial part of the process.
Good luck with your fence! I always find bids are higher than what you expect.
Will you be doing any of the $10K remodel work yourself or outsourcing the job 100% Eric?
Thank you for the comment!
I will be doing 90% myself. I had a friend work with me for a few hours over the past few weeks. Today, I sanded and put the final coat of mud on the new sheet rock. Finished installing a new switch to a ceiling light. Opened up the wall to get ready to do the shower valve. Boxed in the post in the middle of the room to finish that off. And a bunch of smaller stuff.
So, I know how to do all of it, it just a matter of how many man-hours I have.
Eric, Have you ever allowed yourself to keep track of the average total amount of man hours you put in per month/year to manage your 25 unit rental business? Before I got in to this, I gathered a consensus from some other long term professional landlords that use a similar quality tenant = low turnover mindset and they thought 24 hours per year per unit. This would be for everything involving the business up to and including bookkeeping,tax filing etc.
I’m sure it varies from month to month which is why I asked for a longer term to average it out. Also these guys were sub 15 unit landlords and I’m sure economies of scale can apply up to a point.
What has been your experience?
I put in quite a few hours. I do not think I put in 2 hours per month, per unit, but it could be if I add showings, etc. I would guess less than 4 hours per year, per unit. When I look at most units, I never hear from them at all.
There is a lot of economy of scale too. Every form I have can be used across units, and I manage all my units the same. I have ads ready to go for all the units, saved on Postlets.
I do my own maintenance, so that adds quite a few hours, especially apartment turns Major remodels, which I am doing now, take a fair amount of time, I am guessing 100 hours.
Early on, when I only had 4 units, three of which were Section 8, I wondered how anyone could manage more. It was so much work to do a full remodel between every tenant. With better tenants, nothing is broke when they leave. And they have a deposit that covers everything.
So… What was your cash flow? You mention the expense side but didn’t give numbers on the income side.
I have a decent cash flow. My average rental goes for ~1030 a month, or 24,766. Less my vacancy of -1,221 brings me to $23,545. My mortgages are $3,340 per month.
Wow! Impressive! Real estate is a area i have yet to get into
Thank you for the comment and kind words!
Eric, How have you fared in comparison to the rental real estate 50% expense rule? As I understand it, It is supposed to include all expenses except mortgages. Seeing as you are doing almost all of the work yourself, I would think you would do better.
What percent is your best,worst and average year?
Thanks in advance for being so open about this.
Unfortunately, because of other business interests and health reasons, I farm out about 70% of my work and I am dealing with 100 year old properties that had a lot of deferred maintenance so I have not been hitting it….yet. But soon there will nothing left to replace and then it should get better.
I’m just curious, what it’s like after you get on top of things.
P.S. I fully subscribe to the 650+ scored tenants concept. Hard to come by in my area, but *soooo* much more pleasant to manage. Let’s hope we never have to move our line.
I run right at ~45% overall. The highest is a duplex where I pay heat and electric at 64%, and lowest is 42%. But that includes 10% allocation for maintenance, 5% for vacancy and 7% for management. Taking those away, expense are significantly less. If I look at 2013, I spent almost 9% of rents for repairs and supplies, so 10% is not a bad number. I am still battling some deferred maintenance from previous owners, but if you do not spend enough you get a shoddy place too.
I probably spend more on maintenance than some, as I want the very best tenants. I would rather spend it on new ‘stuff’ for the apartment than legal expenses to evict.
We have some updating, so an electrician and building out a wall and tile for the garden unit. Trying to get bids on it right now, not so much fun at the moment.
Outstanding job and system you have in place for collecting rent on time.
What’s the market like in Florida? Any solid prospects from your trip?
The Realtor I had lined up had some family issues, so she could not met with us. We look at several parcels on our own, but since our direction has changed a bit, we are a few years off from buying another property.
I had thought about buying and moving to FL after I retire, and keeping the rentals in MN. But I found out that I will still have to pay MN non-resident tax, even if I am homesteaded in FL. So, it lowers the incentive to have two homes. I may just RV it for a while to get out of MN and look for a final spot. MN is great in the summer, but a bit brisk in the winter.