I really can’t hardly believe it’s been almost nine months since we bought our rental property. Between the purchasing, the cleaning up, taking photos, advertising the apartments, searching for, denying and approving prospective tenants, and collecting a few months’ rent, it’s been a load of new experiences. It feels like much more time has passed since we purchased the house at the end of last July.
I’ve told you about my trials and tribulations searching for tenants. It took a while, but we have tenants we love in both apartments now. I also told you about my experience using Cozy.co to vet tenants and collect rent online. Overall, the apartment rental scheme has had a few minor bumps, but it’s basically been pretty easy.
I’ve even run the optimistic return projections. But one thing I haven’t done is finish an actual income statement… until now!
I treat the rental property as its own entity, aside from our personal income and expenses, so I can see how it’s doing as its own business. Is it self-sustaining? Sure seems like it. I mean, I see the rent roll in each month, but what kind of profit is this place really making?
Even though we bought the place in July, I am counting from September 1 to March 31, since September is when we made our first mortgage payment.
Apt 1: $2,981.94 (2 + 3/4 months)
Apt 2: $5,209.68 (5 + 1/2 months)
Total Rental Income: $8,191.62
We were lucky enough to find tenants for Apt. 2 immediately after advertising it in September. Apartment 1 took some more time. We didn’t find tenants that we wanted until December, and they didn’t move in until January. So during the seven months, the units sat empty for a while.
|Home Equity Loan Payments
|Water & Sewer
|Less Loan Principal
|Expenses Less Principal
After seven months
Rental Income: $8,191.62
Total Expenses: ($15,219.10)
Total Profit: ($10,282.72)
Well that’s not very encouraging! A ten thousand dollar loss so far?? Let me explain why we are showing a loss.
Maintenance – The biggest expense so far has been what I label “maintenance.” This includes many things that we had to get done before we could get tenants moved in.
Washer and dryer – We knew that when we bought the house, one unit had a washer and dryer in it. Well, apparently they were strictly for decoration, because there was no electrical hookup or plumbing hookup. Someone between our inspector, our realtor, and us, should have, but didn’t notice this. I only noticed it about a day after coming home from Japan, and the day before the tenants were going to move in!
As much as I would’ve loved to do everything DIY, there just wasn’t enough time. We promised the tenants a working washer and dryer, and I had to scramble just to get an electrical contractor to put in the correct 220 volt outlet and a vent for the dryer, and a plumbing contractor to put in the washer and dryer connections. All told, our tenants were without a washer and dryer for a week and a half, but were very understanding about it.
Chimney – We’re lucky that our inspection went so well. We knew the house was in very good shape, and our inspector found nothing wrong with the house except for the hot water heater exhaust was clogged with dust from the chimney. Long story short, we had to get the chimney re-lined, and that cost $1,805. We were happy to just get it done and not worry about it.
The other washer and dryer – Even though our first apartment was rented in a heartbeat, our second one sat on the market for weeks without an inquiry. We decided it was because there was no washer and dryer in the unit. What I thought would be a good way to attract two different types of tenants to the two different types of unit (one with w+d, and one without) didn’t work out. We spent $950 (after Lowes coupons) on a new washer and dryer and actually had our tenants agree to move in just based on the promise that the washer and dryer would be there by their move-in date.
Property Taxes – $3,606 is the bulk of our property taxes for the year.
Gas – Since the heating is gas, and it is included in the rent, we pay for it. This statement covers the coldest months of the year. This should be much lower for the next five months. We’ll see how close my initial estimate of $100 on average per month will be.
Okay, so imagine that we drop all of the maintenance expenses ($5,317) and that the two units were occupied for all seven months (another $5,983 in rent), and suddenly we’ve turned a profit.
The good news is that, so far this year, we’ve made a profit in January and March, and probably will in April. The only reason February was not in the black is that part of our property taxes were due, and we bought that washer and dryer. I see our property turning a tidy profit soon. I’ll post another income statement after the first twelve months.
Any rough experiences out there for first time rental property owners?