This post is longer than normal but packed with lots of updates on various things. I might even teach you a new ratio for real estate… how exciting.
We had another month with a tenant at the rental house and the results were great.
What Happened in October?
Almost Nothing. The property manager sent out an inspection company to complete a 6-month inspection of the property. They looked for repairs that were needed, and tenant issues, and took photos. I got a 46-page report showing that everything is great. This cost us $125 but it was nice to know everything is in good shape.
I am not contemplating appreciation in these monthly updates, although we all know appreciation (increase in value) has been occurring in the Real Estate market over the last 12 months.
Also, the mortgage payment is putting around $416 a month directly to the principal which helps our equity in the rental too.
Income/Expense | Amount |
Rent Money | 2500 |
Property Manager Fee | -175.93 |
Inspection Fee | -125 |
Insurance, No more tax reserves until January | -114 |
Mortgage Payment | -904 |
Total Cash flow This Month | $1181.07 |
Equity from Mortgage Paydown This Month | $416 |
Monthly Profit | $1597.07 |
Profit or loss from Cash Flow and Equity of Mortgage Paydown but not including appreciation since the tenant moved in (End of April 2022) $7959.85. I did update this total by $311 to make up for the tax money we had previously set aside that won’t be used.
Cash on Cash – October marks 6 months with a tenant. I thought it would be a good time to do a new calculation called cash on cash return. Cash on Cash is a ratio or percentage that tells you how much you are making based on how much money you have put into the deal. For example, if you have invested $100K out of your pocket in a deal and it made you $10K that year, it would be a 10% cash-on-cash return. This helps you see what you are truly making when a property has leverage (debt) associated with it.
Including our 25% Down payment, Closing costs, and money we spent to spruce up the place, we invested $76,864. Through 6 months, we have profit, including equity from the loan of $7959.85. If we annualized this we are looking at an estimated annual cash-on-cash return of 20.7%.
If we don’t include the monthly mortgage paydown as profit and look strictly at cash flow, our cash-on-cash return is estimated to be 14.2% annually.
We are only 6 months in and I’m sure there are many adventures left to come, but an annual return of 14% to 21% before including appreciation is great. Especially in a year where the stock market has been wild.
Real Estate
We came close to making an offer on a few rentals this month. This is a new direction for us as it would be a short-term rental that we would self-manage on Airbnb/VRBO. There is SO MUCH to learn but it has been fun learning about it all. When a property hit the market we plugged it into the profitability spreadsheet that we created. This spreadsheet is helping us to estimate expenses, and revenue and showing what the profit, or loss would be. We have done this with 30+ properties already so it’s getting easier to understand what is a good deal and what isn’t. Then we started figuring out what revenue similar properties were brought in to determine if we could bring the revenue higher.
Next, we embarked on getting mortgage rates, which were 7.5% to 7.9% for a 30-year with 25% down -OUCH…. well that just about killed the deal. We asked a few questions for our agent to ask the seller. The Real Estate Market felt like the market of 2021, within day 2, the property was already under contract.
A couple of days later another property hit the market. It was more expensive but we thought we could make the numbers work. That is until I got an insurance quote. We had estimated $5K for this townhouse because the community said they provided some insurance. The quote we got was a staggering $61,000 a year in insurance costs. Needless to say, that blew a gigantic hole in my spreadsheet.
After talking with Alison and deciding to give up for now because nothing was making money and we had strayed far from our original plan. I pulled a random property that we didn’t really like and put it into our spreadsheet to once again convince Alison it didn’t make sense. Shockingly it turned out to be the most profitable property we have seen in months. This put us back to number crunching and planning. Who knows what will happen but it’s been a wild ride so far.
Alison Here!
This month was a roller coaster of emotions. It seemed like we were ready to buy a STR every morning, and by dinner time we had decided we were never going to buy real estate again. We were constantly doing math and weighing pros and cons but nothing made sense and with the crazy interest rates and insane insurance rates we just couldn’t make the math work for us. Having a STR at the beach sounded like a dream, but when we really thought through the logistics we just didn’t know if we were ready to have a part time job taking care of it. We are keeping an eye on the market and maybe it will make sense for us in the near future.
Books Ricky Finished This Month:
Scream-Free Parenting – By Hal Runkel – This book was recommended to me by a neighborhood friend. He told me it changed his parenting and I figured it would be worth reading. It was fantastic. It talked about how we aren’t made to control our kids. Our primary leadership role in our family is to be a calming authority. It taught me that I need to focus on my emotions and responses more than trying to control the kids. The bottom line for me was summed up by this paragraph “It isn’t our job to be responsible for our children. That is impossible unless they are robots. Our job is to get our children to think, feel and behave like a good person.” I have plenty of more notes but I would highly recommend this as a book to check out.
The Airbnb Playbook – By James Steward – As the title suggests this book covers almost everything you need to know about buying and managing a short-term rental. I have read several books on this subject but this book taught me several things I hadn’t heard before and kept my interest.
Books Alison Finished
Upgrade By Blake Crouch – I don’t remember where I got this recommendation but I put it on loan at the library months ago and it finally came available. This was a good 3 star book. I read the first 150 pages in 3 days, but it took me basically the rest of the month to finish it. It is a futuristic thriller all about genetics The main character gets an DNA upgrade and it leads him on an adventure to save humanity. I was really invested but the genetic talk started to get too much to follow, and by the end I was ready for it to be over. This was my only book I finished this month.
Books August Finished
Our 8-year-old is quite the reader. We were recently having a conversation about reviewing our books on the blog and August overheard and was anxious to join in on the fun. Here are the chapter books he read this month. I am a little shocked at how much he read this month but here it is.
On the Edge of the Dark Sea of Darkness – Andrew Peterson – August gave this 5 out of 5 stars and said this is the best book he has ever read. It was even better than Harry Potter, which is quite the statement. According to August, It is about three kids in a land called Skree that have a lot of adventures. Their parents were the king and queen of another land. He can’t wait to read the next one in the series.
Stick Dog Slurps Spaghetti by Tom Watson – August gave this book 3 out of 5 stars, He found this book at the library by himself and picked it out. It was a 238-page chapter book and he finished it in 4 days. He said it was a crazy story that kept him laughing and entertained.
Stick Cat – Tom Watson. August gave this book 3.5 stars. He said it was a fun read and he finished it in 5 days. This book was 226 pages.
Captain Underpants and the Invasion of the Incredibly Naughty Cafeteria Ladies from Outerspace – Dav Pilkey August gave it 2.5 out of 5 stars. He has read a few other Captain Underpants books and enjoyed them too. It was another chapter book that was 140 pages. This one doesn’t have as many words per page but it is still a decently long kids’ book.
Blog Update
This is our 56th blog post and we have been working on this for a little over a year. It’s been an interesting journey. We still have no clue what we are doing, why some of you are reading, and how to convince the rest of the world that this is worth reading. But we are having fun and hopefully adding some value or entertainment to your life while helping you think differently or feel encouraged about your finances. Truthfully Alison is just glad I have you, people, to “talk” to, so I don’t just talk to her about all of this stuff. We appreciate you taking the time to read. If there are questions you have or topics you would like to read about, We are open to any and all suggestions.