Rental Properties: Part 1

We have been contemplating owning rental properties for a few years.  I saw my sister purchase her first (of many) rentals properties a couple years ago with no regrets so we sort of got inspired. We were just waiting for the right time.  Our plan was to purchase a property in the small town we planned on settling in once we reached financial independence for 3 reasons:

  1. We want to be close by to manage and handle most of the maintenance ourselves.
  2. Property prices and potential ROEs in the region are extremely attractive.
  3. My dad lives in this same town and he is a “jack of all trades” contractor that can fix any problem.

2017 also presented an amazing opportunity for us to enter the rental properties market.  My dad was retiring from his job and would be available for us to hire to take on renovations and maintenance of our building.  With his help we visited 10 rental properties in the region.  We finally settled on a 100 year old, run down 4-plex with 2 vacancies.  We got it for $185,000 with a mortgage payment of $675 with a potential monthly revenue of $3,500. It seemed like a no brainer.

We put aside $20,000 to completely renovate the 2 empty units from top to bottom.  So far one unit is completed and rented out for 25% higher than before we purchased it. We are on track to rent out the second unit at the same ratios on June 1st. We plan on adding another $20,000 to this building over the next couple years when we get the chance to renovate the other 2 units.

The process has had its challenges but we are very encouraged by the rental market demand and we have stayed within our renovations/maintenance budgets so far.  Utility expenses have surprisingly been slightly less than we budgeted for.

overview of expenses/revenues

Expenses
Mortgage $675
Water $263
Heating (we only pay gas at 1 unit) $75
Hydro (2/4 units heat with electricity) $400
Property Tax $110
Insurance $188
Maintenance $100
$1,811.00
Revenue $3,300
Monthly Cash Flow $1,489.00

 

These are just approximate numbers and obviously we have to account for major capital expenses. Revenues should also increase with additional renovations. We will also continue to try and find efficiencies we can improve.

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2 thoughts on “Rental Properties: Part 1”

  1. So you are cash positive on this with only one of the 4 units occupied or is the $3300 number the expected revenue when fully occupied? That’s a sweet low risk opportunity if so.

    1. Thanks Kevin! $3,300 was what it was generating with 1 of the unit renovated but all occupied. But since that article, we now have 3 renovated and the income is $3,650. The cash flow has been way better than expected so far.

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