Rental Properties: Part 2

Last month we closed on our second rental property.  This one is a triplex that we purchased for $190,000.  The ratios are a little lower on this one but it requires a lot less work.  It is fully occupied and already generating great cash flow.

Here’s how it looks:

Mortgage $699
Water $221
Heating $213
Hydro $306
Property Tax $205
Insurance $113
Maintenance $100
Unit 1 (3 bedrooms) $1,150
Unit 2 (2 bedrooms) $950
Unit 3 (2 bedrooms) $800
Profit $1,043.50
Annual $12,522.00
Mortgage Principal $4,200
Profit with Principal $16,722.00

Our down payment and closing costs came up to about $41,000. We also plan on spending about $7,000 in the next year in overdue maintenance and renovations (particularly, redoing the exterior).  Total invested will be $48,000 so this building has a potential ROE of 35%.  We obviously expect some hurdles and some repairs to to do in the short term so the ROE won’t be that high.  But overall, the cash flow is great  and allows for unexpected issues to arise and still make a profit.

We believe there is the potential to increase the rent for each unit by $100-$200 if they ever become vacant.  This would require between $5,000 and $8,000 of renovations in each unit.  Likely closer to the $5,000 range because we will be living nearby in a few months and can do a lot of the renovations ourselves.

So our 5 year outlook has us adding $15,000 in capital renovation and rents increasing by $500 for a potential annual profit $18,000 (or $22,700 with mortgage pay down).  This would keep the long term (optimistic) ROE at around 35% without considering any appreciation in values.  Our properties are in a small town which has a strong demand for rentals, however the market does not seem to appreciate like the big cities.




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