People need to know the truth about real estate investing. The truth is it takes money to make money. There is nothing for free. And that flipping isn’t investing, it’s a job. I’m not saying you shouldn’t scrap to achieve. But that is a whole other topic for a whole other time.
Back in September I did a post titled Investment Property Case Study. So here is the follow up.
That very same portfolio is wrapping up the year. So I thought I would show you the results of THIS YEAR only.
Gross Operating Income $525,869
Operating Expenses $182,330
Net Operating Income $343,539
That looks pretty good! But the Operating Expenses are not complete. This real estate investor group pays their own property taxes so I don’t have the exact number to enter. But I’m going to guess somewhere around $58,000. That would leave a real NOI of $285,539.
Based on their “all in” acquisition costs (only, not the “to-date” I used in the other post) that would leave them with an unadjusted Cap Rate of 10.2. That would also be their Cash on Cash return.
So, not too shabby. And let’s not forget that there has been a 36.3% increase in value of these properties since their acquisition.
Yes. Real estate investing can make you some serious dough. Now, you don’t have to be an investment fund to make this happen. If you bought one, and then another and were getting these returns, what would your retirement look like?
A “Retirement worth having” doesn’t happen by accident. Start today. Give me a call. 913-568-1579
Maintenance can make or break your investment property. And yet it is one of the things as a professional property manager that I seem to fight with owners the most about Well, maybe fight isn’t the right word. But sometimes it can be like pulling teeth.
Look, if you are going to get top dollar for rent and top dollar when the time comes to sell your rental house isn’t it going to have to be in good to great condition? Or are you one of those sellers that thinks tenants should pay the highest rent for a house where maintenance isn’t kept up? Or that buyers won’t notice the overgrown shrubs rubbing against the house causing all that wood rot? Come on.
Whether you manage your own rental property or use a property manager keeping up with maintenance is a must. And if you keep up with it then it’s not so expensive when you do it all at once…and have to do more than you would have if you had just kept it up.
From our point of view as property managers, we spend more time on maintenance issues than any other category of our job. Heck, even leasing doesn’t take up as much time. Coordinating schedules and payments takes quite a bit of man power. Maybe that’s why so many others shy away and defer rather than just the money. But I implore you to keep up on the maintenance of your investment property. You will thank me later.
Thanksgiving is just around the corner. So it’s time to count our blessings. I for one, am glad I’m a real estate investor and that I am real estate agent for real estate investors. It’s a busy life. But it’s lucrative. My work allows me to support my wife and kids and to pay for college and, well, a vacation every year. Sure I work hard. Sure there is risk. But who said life should be void of hard work and risk?
I am thankful for each of our clients that has put their faith in us. We are not perfect. But we always try to do the right thing. Of course, working with all these real estate investors on rental houses has led to us owning a property management firm, as well. That has allowed us to provide better service for our clients and to grow 5 Kansas jobs. (With no governmental subsidy.)
Property management isn’t glorious. But it’s needed. It isn’t easy. But it isn’t rocket science, either. We are happy to serve real estate investors from all over the country. Thankful, really.
I hope you, too, are thankful in your line of work. And thankful for your family and friends.
I sat down with a very nice retired man the other day to discuss his eleven rental properties that he manages himself. A fellow realtor was trying to convince the man that he shouldn’t be managing his own rental properties because it was costing him money. And after hearing all the facts, the realtor was correct. This man was costing himself a considerable amount of money by not letting myself or another property manager manage his rentals.
You see, he has a tenant who has only been partially paying for the last year. I said year! When I learned additional facts about the story I knew that the situation was even worse, but I won’t go in to those here. But suffice it to say the tenant was short paying by about $400/mo leaving a deficit of about $4,900 for the last year.
Then there was the additional tenant staying in the home causing damage. Then there was another of his eleven properties that had pets that he didn’t initially know about. And he has two vacancies. So, essentially, he has 4 properties under-performing.
Now, one vacancy out of 11 isn’t too bad, normally. But both of these vacancies have been for many months. And now it’s mid-November.
His chief objection was that a property manager costs him money. And he’s right. But as near as I can tell, he’s losing about $3,150/mo not using a property manager. My cost would be somewhere around $780/mo to manage those 11 properties. Throw in some leasing fees and you might be up to $1,100/mo. Might. But he’d still be in the black by about 2K a month on his rental properties.
So is property management costing him money? I’d say “no”. But, I was unable to convince him of the value of my services. He’s concerned about the monthly fee and being nice to his tenants, the same tenants who are breaking his leases and abusing his demeanor. I wish him the best.
Real estate investing isn’t new. It isn’t exciting. It isn’t quick. Real estate investing is “Get rich slowly.”
I’m sorry if that doesn’t excite you. I’m sorry if it’s against everything every seminar guru wants you to believe.
There is a difference between real estate investing and real estate speculating or a real estate job.
Here in Kansas City, real estate investing means buying quality properties, taking care of them as well as the tenants and then letting time march on. As time marches on you can usually depend on appreciation at or above (slightly) inflation, the fact that your tenants are paying down your mortgage for you and that REI is creating tax benefits for you that you may forget to calculate in to the equation when you get started.
Dave Ramsey said on the radio the other day that the stock market generates a 12% return per year if you look at the average from the beginning of time. Real estate will do that, too. And better when you calculate everything and buy in good neighborhoods…and has the added benefit of providing quality housing for people who need such.
I will not be accepting calls after 7:07 pm CT each game day until this thing is settled. :)
Property managers and rental property owners love to talk about how stupid tenants can be. Well, it’s my experience that investment property owners can be equally stupid.
NOTE: Yes, my use of the word stupid is meant to illicit a response. Perhaps ignorant would be a better word. Webster describes ignorant as “lacking knowledge or information as to a particular subject or fact”.
Landlords and Owners, here is something you need to know: Tenants that move at the end of each lease cost you money!
It’s my general rule of thumb that you need to keep tenants on average about 18 months to make sure you are making money. Especially if you are using a property manager. Why? There are so many costs to changing over tenants.
- Paint, carpet, repairs
- Lease out fees if using a property manager
I see owners squabble over repairs that will cost them $175-$200 and piss off tenants because they won’t fix something. Then the tenant leaves, they end up with 30-45 days of vacancy, some electric bills to pay and more.
If your rent rate is $1,100 /mo and you take in to account some of the other expenses you may have cost your self $1,500 – $2,000 over a $200 repair. Is that good math? Am I missing something?
This isn’t a rant. But I see it happening right now with an owner who is new to investing. I am not mad at him. I actually am trying to educate him. But I seem to be losing the battle sometimes.