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The Cash Flow Analysis for Our Rental Property (at Year End 2017)

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.

Twenty-seventeen was the absolute best year ever for our rental property: 100% occupied, no major repairs, not a peep from our tenant, and the biggest cash flow amount ever!

If you're new to my recaps, this is property is our old personal residence – a Frisco, TX townhome we purchased in 2007 and converted to a rental property in 2012. We bought it for $205,000 and put 20% down. We now owe $140,000 on it and the value is listed as $330,000.

We manage this property our self: listing it, vetting tenant, managing repairs, rent collection, and more. It's been a very positive experience overall, especially if you consider we're essentially accidental landlords.

In summary, this year was made great because we raised the rent in 2016 and have seen a full year with the same tenant at that higher rate of $2,175.00.

Additionally, we saw virtually no repairs or maintenance on the property. It was brand new when we purchased it in 2007 and we seemingly made more than a year's worth of repairs in 2016 so we were due for an easy year.

Cash Flow Analysis | Rental Property | Landlord | Real Estate Investment | Real Estate InvestingLet's look at the specific numbers:

2017 Cash Flow Analysis

2017 Rent Collected

  • 2,175.00 January Rent
  • 2,175.00 February Rent
  • 2,175.00 March Rent
  • 2,175.00 April Rent
  • 2,175.00 May Rent
  • 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 $26,100.00 by check

2017 Expenses Paid

  • $10,108.44 Mortgage Payments for 12 Months
  • 7,186.03 Property Taxes for 2017 (up ~$600 from 2016)
  • 2,100.00 HOA Dues for 12 Months (It’s a townhouse, so this pays for lawn care, outside insurance, and the pool)
  • 657.29 Insurance (Condo policy through Allstate paid annually with credit card)
  • 119.00 Repairs (Air Conditioning Check-Up)

Total Expenses Paid $20,170.76

Total Cash Flow $5,929.24

Officially our best year ever!

Our cash flow through the years:

  • 2017: 5,929.24
  • 2016: 1,933.72
  • 2015: 3,158.47
  • 2014: 2,104.44
  • 2013: 4,256.41
  • 2012: (53.93)

Notice the pattern? It seems every other year I make a better cash flow. This correlates with years in which the tenant has the property 100% occupied and rent is consistent.

Also, by the second year, the tenant and I have worked out all of the kinks (i.e. repairs, maintenance issues) and the property seemingly costs less to keep up.

Cozy: Free Property Management Software Price: Free Collect rent online, tenant screening, property listings, rental applications, rent estimates, insurance, expense tracking, maintenance, and more. Cozy: Free Property Management Software

What's next?

I've given up on the idea of doing the cash out refinance to improve the yield from the investment in this property – something I hinted at last year. I just don't have an interest in taking on more debt and finding a new property. I'd rather just focus on my businesses.

The agreement with the tenant runs out next May. I will need to negotiate a new lease at that time. My hunch is that they will want to remain in the property and I might be able to raise the rent to $2,200.

What gets me excited about this property is the idea of getting rid of the mortgage and being able to bank ~$15K in cash flow each year. That would be an awesome supplement to our business income and/or retirement investment income in the next phases of life.

Do you have a rental property? If so, how did yours do this year? If not, have you ever considered it?

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Last Edited: May 18, 2018 @ 8:51 am
About Philip Taylor

Philip Taylor, aka "PT", is a former practicing CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of FinCon, the conference and community dedicated to helping other financial influencers and brands. He created this website back in 2007 to share his thoughts on money, hold himself accountable, and to meet others passionate about moving toward financial independence.

PT uses Personal Capital to keep track of his financial life. This free software allows him to review his net worth regularly, analyze his investments, and make decisions about his financial future.

PT keeps a portion of his emergency fund in Betterment, the automatic investing tool that makes investing super simple. Betterment focuses on what matters most: savings rate, time in the market, investing costs, and taxes. PT recommends this service to anyone looking to get started investing for themselves.

All the content on this blog is original and created or edited by PT.

Comments

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  1. GreenDollarBills.com says:

    Hi Phil,
    Apologies if you’ve covered this in the past but what’s your gross/net yield on your rentals? I’m looking at arranging my own (here in London,UK) but it’s starting to look like a hell of a lot more effort than it’s worth….stock market returns look higher and with less admin!

    • Philip Taylor says:

      I just have the one property. So, what you see above is it. We originally put down 41k as a down payment on this property. So, the $5,929 we made in cash flow this year represents a 14% annual return on that money. What I like about having real estate is the diversity it gives me from the market. A REIT could provide a similar feeling without as much risk. I also use a site called Peerstreet to invest this way.

  2. Jason Cabler says:

    I paid cash for a rental property through my self directed IRA almost 5 years ago, and it’s been awesome! I have a property manager who takes care of everything so I literally spend only 2-3 hours a year dealing with it. I wish I had 10 more!

    I’ve had the same tenant since the beginning and repairs are usually minimal, so the cashflow is excellent! I’m reinvesting the rent money in stocks and mutual funds to juice returns and eventually build up enough for the next property.

    I wrote a series of posts on my adventures with buying my first property which you can find here: https://www.cfinancialfreedom.com/series-investing-rental-house/

  3. David Domzalski says:

    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

    • Philip Taylor says:

      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).

  4. Eric Bowlin says:

    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.

  5. Matt Miner says:

    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.

  6. Joseph Hogue says:

    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.

    • Philip Taylor says:

      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.

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

  8. 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%!!

  9. 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.

  10. Philip Taylor says:

    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?

      • Philip Taylor says:

        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.

  11. DenverEric says:

    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.

  12. 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?

  13. Philip Taylor says:

    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.

  14. DenverEric says:

    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!

  15. moneystepper says:

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

  16. 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

    • Philip Taylor says:

      @MJTM It’s a standard 30 year fixed loan. So you take the principal payments out of your cash flow analysis?

      • @Philip Taylor  @MJTM Probably best to leave principal in as it’s more conservative and can’t easily be extracted.

  17. Pennysaver Pam says:

    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.

  18. BillyMurph says:

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

  19. 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

  20. 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.

    • Philip Taylor says:

      @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.

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