Here at Kansas City Real Estate Investing we get asked all the time, and rightfully so, for real life examples. Real numbers.
“What is my return going to be if I go with you?”
Well here are some actual cash on cash returns of an Kansas City real estate investor. Below is an email I sent to an income property investor who is actively in the Kansas City market buying, rehabbing and then renting property on a consistent basis. You’ll be able to figure out the average all in costs with a calculator and just a few minutes of your time.
Some background: This investor now holds 47 rental properties that we have had the pleasure to sell them, then manage the rehab and then manage the properties with suitable, qualified tenants. We ran these numbers for the houses that had closed before the end of October of 2011 and thus were inhabited by real life tenants by January 1.
Also, while these homes are not in Mission Hills style neighborhoods they are perfectly safe, have good school districts and now have lots of sweat-equity. I won’t let my clients buy – rehab – rent a house that I don’t want to manage. And if my grandma wouldn’t spend the night there* (God rest her soul) then we don’t buy it.
Enjoy…and hopefully you’ll pick a few nuggets out of the brief synopsis.
* Phrase stolen from BawldGuy.
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So to get to the bottom of the question as to how much these houses are/are not making what I did was go back to the homes that we purchased last summer/fall that we had time to get rehabbed and rented before Christmas. I took the close date and then gave about 60-75days (or so) for rehab and lease out and to basically let all the rehab expenses fall off and just get to the expenses you would have if you had bought turn key.
Attached is a .pdf of the raw data if you would like read. But here is a breakdown that may be helpful.
There are 15 properties in question. Of those, 4 turned out to have some post-inhabited major repairs…either things we should have done before occupancy or things we had no way of knowing. (See more details in the raw, scribbled data.) Also realize that on the raw sheets I put approx how many months the homes are being evaluated from. No insurance or taxes are included. But literally everything else is.
All 15 homes had an income of $109,083 with expenses at $40,887 which is 37.5% of income.
If we lose the 4 homes with the more major repairs (new ac, new plumbing, etc.) we had 11 homes with income of $82,321 and expenses of $23,947 which is, of course, 29.1% of income.
There are variables here that are hard to pinpoint. We cannot know EXACTLY what the numbers are until all rehab expenses are pared off and I cannot know that without a forensic examination of each and every property. So I tried to accomplish it by just taking the close date and adding a couple months as mentioned above.
So sometimes the lease out fees may not be totally included. But in most cases it’s close.
Adding in pro-rated insurance and taxes and I think we’re pretty close to (or possibly under) the 35% I like to shoot for…at least on the houses that didn’t have something major come up on. With those extra four houses included we’re probably more like around 40%-41% range.
I hope this helps. I’m happy it showed pretty much what I promised/expected. 🙂 But positive or negative I’d love to hear your thoughts.
If we want to take the scenario farther…and I do…let’s figure a pro-rated return of all 15 homes. I’d say the average is about 9 months.
109,083 – 40887 = 68,196 / 9 months =7,577/mo x 12 = 90,928
If you take the CAPEX Column R from our KC Portfolio Master then you’ll see your all in price for those homes is $648,747.
$90,928 / $648,747 = 14.0% cash on cash return
Not too shabby.
But again, this just can’t be exact with some of the educated guess work I’ve had to do. So plus or minus 1% is probably safe to say.
And we haven’t even talked about the hidden equity in all of these homes now….
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