September – October 2014 Rental Cash Flow

packs-163497_1280-PDIt’s time for another report on the rental property cash flow.  The month of September was extremely busy.  I had a brief trip to Florida, where I looked at several areas to potentially invest in.  While no properties actually excited me that much, it was a great trip.  I did realize another thing.  While Florida might be a great place to spend during the Minnesota winters, it is a bit humid during the summers.  Even in the morning.

So here is how the cash flow evolved for the moth.

October Rent Collections.

All 24 rents were collected by the fifth of the month.  I have one vacancy.  My automated text that typically goes out on the 28th of the prior month did not go out.  I use the free version of Go SMS Pro, and it needed an upgrade which I neglected to do.  I noticed the error on the first of the month, and immediately upgraded the application.  I think the lack of notification caused a few rents to be collected on the third, rather than the first.

I am still pleased with 100% of rents being in the bank by the fifth.

Time Off for Good Behavior

I did take six days off to go to Florida in September.  At some point I may purchase property there, but not quite yet.   I had the intention of moving to Florida, and managing my properties from a distance.  Doing a 1031 exchange and renting the property for a couple of years, and then moving into that property.  Florida had no state income tax, so I thought that might be a great way to get away for the winters, and save Minnesota income taxes.  I have since found out that there is a thing called a ‘Non Resident Tax’ that must be paid on income earned within the state.  So, no matter where I live, Minnesota taxes are still due on rental income earned in the state.  There are some ways around this, but paying self-employment taxes are worse than state income taxes.

So, I might as well live closer to the properties, do my own maintenance and save even more money.  I can still get away periodically in the winter, and have a great seven months here in Minnesota.  We have lots of water, plenty of fall colors, and a lot of great things to do.

As I get closer to leaving my full time job, I am considering doing several RV trips, which I hope to write about here on my blog.  I attended a couple of RV shows that also took away from my time on the remodel project.  I have also been taking a long walk, three miles, every day to spend some quality time with my longtime girlfriend and faithful dog.  As I have spent a lot of time over the past several years remodeling, and I only have one vacancy, it’s time to start to do some other ventures.  I had been putting in to many hours.

I am gradually transitioning my mindset to a more financially independent lifestyle where I will have at least an additional 40 hours per week available to me.

Property Taxes and Loan Payments

I paid $9,558 in property taxes this month, ouch.  I have five buildings that are mortgage free, so I no longer have escrow amounts that are used to pay property taxes on these buildings.  The plus side of the equation is I no longer have those mortgages; the downside is I need to budget for these taxes myself, and pay them myself.  If you have any sort of organizational skills, it is not hard to budget.  And if you have a solid cash flow, which I do, you can take it out of the current rent collections.

I also paid another $9,000 on my HELOC that I used to help pay off my mortgage.  The interest rate is at 1.99%, but I want to get it paid off before it goes up to 3.25% in January 2015.  The original balance was $50,000; it is now $27,000 after two months.  I am saving a P & I payment of $1,145.51 every month on that mortgage.  I actually paid off two mortgages in 2014.  Combined, they add over $2,550 per month, or almost $30,600 in additional cash flow annually.  Some people would be able to live on just the extra cash flow.  For me, as I get closer to jettisoning from my full time job, it helps reduce some of the risk.

The mortgage companies also paid almost another $7,500 in property taxes out of my escrow accounts, so hopefully someone benefits from all the taxes…

The Visa bills also came due for the Florida trip.  It wasn’t too expensive, but it wasn’t as cheap as staying at home.

Remodel Project Continues

Once I terminated the lease for my Section 8 tenant, I knew I was going to have a time consuming project.  I am still in the heat of the battle with my remodel project.  I knew it was going to be a lot of work repairing the unit and getting it back in shape for a market based tenant.  Many of the improvements I am making are things that are unrelated to the section 8 tenant, but will make the place better in the long run.  I have tackled larger remodeling projects in the past, so I am not worried about the work, just the ambition…

Among the improvements
Tiling bathroom floor ($125)
New Shower Surround ($200)
New Kitchen Cabinets ($1,325)
New Counter Tops ($225)
New Appliances ($1,000)
New kitchen faucet ($100).
New Laminate Floor ($1400)
New light fixtures and switches ($250)
New six-panel doors ($450)
New deadbolt locks ($75)
Build permanent closets in two bedrooms ($300)
New Modulating Furnace 95% efficient ($2,100)
New suspended ceiling tiles ($175)
Replace dark paneling with Sheetrock and paint ($100)
Replace bathroom ceiling ($50)
New Vanity, light bar, and medicine cabinet, faucet ($300)
Painting ceilings and doors ($100)
New trim work around doors and floors ($200)
Other miscellaneous supplies ($500)
Vacancy Expense ($5,000?)
Many other things fixed as I see them.

Total Cost is almost $9,000 plus the vacancy expense

Luckily I had some supplies left over from previous projects, and all the proper tools.  No major tools were needed to be purchased, other than some small hand tools.  I bought a new grout float and some utility knives.

Since I do most of the work myself, it all takes time.  But I am saving quite a bit, and likely getting it done in a better quality than someone I might have hired.  I do have a friend or two that work with me once in a while so I can get some additional hours in.  They get some side hustle money, and I get extra labor.  I did inquire about getting more help, but there are far too many people that want $50+ per hour to work.  And, they cannot be available until a month out.

If someone is going to make $50 an hour, it’s going to be me, as I will save it.  A month of vacancy is easier to take if I am saving more than the lost rent cost.  Many of these folks cannot do carpentry, plumbing and simple electrical work, so I do it myself.

18 Replies to “September – October 2014 Rental Cash Flow”

  1. Eric where did you find a HELOC with that low of rate? I’m currently working on one and the best I can find is at a local credit union. 3.25%. Most everyone else is Prime +1. But now thinking about it sounds like you got an intro rate. Anyway thanks for the blog. Helps keep me inspired with my rentals. Will

  2. I sold off 3 of my 6 mortgaged properties. Seems here in Southern California rents are hard to get, or I’m not picking good people. Job market unstable, I’ve actually exited 8 homes I paid cash for and im carrying the paper. Good news is 5 of the homes where 275 ish in 2005 I got them as Reo’s in 2009-2010 so I fix very little,rented them but past year I’ve resold them all for 129-159 each and carry the note in 6-7% range, low down, by the way mortgage to me is close to same as cost of renting so I have tons of interest, I find when people own and I’m the bank, they pay. I simply after 12 years have never had it so bad collecting rents, and for the record, 3 bed 2 bath goes for $2,000 on average, nice place $2,300 and it’s difficult based in the economy, but areas going price. They just aren’t making tenants like they use too. I’m enjoying mortgages while the owners fix up the homes I can take property back if they default, I have a quit claim deed signed already stating upon being 90 days late I recover the property. Anyhow I am looking to buy more but have not gotten that fuzzy feeling, besides I now only have 3 rentals I don’t work and I still make 6 figures. I’m feeling blessed. Signed, self made Cheryl in Ventura county, ca.

  3. In 2009 I paid 55 ish for my homes that where 275k in 2005 and resold 2014 $129-159… Little repair work, if any… forgot to. Put that

  4. That’s really interesting on the 1031 exchange for moving to Florida, Mrs. Even Steven and I have talked about an eventual move to Florida and purchasing a multi-unit to live in, I don’t think we considered our current multi-unit we live in Chicago, especially with having to pay taxes on the Chicago income in retirement. More research is needed on this one, thanks NNL.

    1. As long as you rent out the 1031 exchange unit for at least two years, you avoid any depreciation recapture, until you sell. If you eventually die, and pass on the building to your heirs, they get it at the new basis, so no depreciation recapture then either.

    1. Thanks Kim! It is getting a lot closer and more realistic. As I start to plan on things I am going to do, it is a bit of nervousness, but not much different than what I have been doing. Just no full time job. You will get there too, I wish I could swap ages with you.

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