Category: Real Estate

First Time Landlords: Second Year Income Statement

Can you believe it? It’s been two years now since we bought our rental property! In 2015, we had been maxing out our retirement accounts and looking for a new type of investment. Going by all the early retirement blogs I was reading, it seemed like the next step was adding rental property to our portfolio. The jerry-rigged returns you can conjure by buying a rental property with little cash down are pretty incredible. So I bought some books and read up on what to expect.

We bought a two-family house that hardly needed any work. We had more money than time, and were strictly interested in having a positive cash flow as soon as possible. We didn’t want to be stuck paying for renovations and waiting to rent it out.

Here’s a summary of what’s gone on for the past two years:

July 2015 – We buy the house for $134,000. It’s vacant and in good shape, so we get to work cleaning it up and doing some maintenance. The chimney needed re-lining, and we needed hookups for a washer and dryer on the second floor apartment. We had a lot of discussion about what prospective renters would be looking for in an apartment, and a washer and dryer seemed right at the top.

September 2015 – We find out first renters after listing the apartment on a Saturday, giving them a tour on Sunday, and getting the lease signed that week. This was extremely lucky. They move in in mid-October.

December 2015 – The first 1st floor apartment is still vacant after doing numerous showings and getting some unattractive applicants.  We eventually get a couple and they move in in just after New Years, after we purchase a washer and dryer for that unit. (We had been leaving this one unit without a washer and dryer in order to attract those tenants that have their own. That didn’t work out, as you can see)

Winter, Spring, Summer 2016 – This was the golden time. “They were serene days and quite undemonstrative.” Rent was always paid on time, we hardly heard a peep from the tenants, and everyone was getting along. We didn’t have any major repairs, although the 30 year old washer in the 2nd unit broke, so we bought a new one.

October 2016 – Our first tenants let us know that they won’t be renewing and are moving to be closer to work. We become dizzy with greed and get anxious to fill the unit as soon as possible! We accept new tenants and they move in just after Thanksgiving. The less said about them, the better. Pretty soon, we realize…

February 2017 – After a few nightmare months, we buy out our tenants’ lease by giving them a free month’s rent, and then vow to better vet potential tenants in the future, even if it means the unit stays vacant for longer. We soon get a referral from the 1st unit tenants. Their friends visit, love the place, say they are looking for a place to stay long-term, and sign a lease. We let out a huge sigh of relief.

June 2017 – We replace the ancient fridge and stove in the 2nd unit. (My parents laughed when they saw these appliances) One of the 1st unit tenants start mowing the lawn and raising a garden in the backyard. We let out another huge sigh of relief and for the moment, we’re back on easy street.

So far, it’s been some work, but with huge variations from month to month. This summer, we’ve only been to the apartment a few times for minor things (replace six window blinds, replace kitchen sink sprayer, re-paint backdoor stairs). Compare that to seemingly endless showings you have to do sometimes to get a renter. I wish I could estimate how much work it is on average per month. Five hours possibly? I have no idea.

Here’s our income statement for the past two years:

 Income Statement 2016 2017
Total Income $18,317 $20,467
Mortgage Payments ($9,099) ($9,099)
Home Equity Loan Payments ($1,364) ($1,572)
Property Taxes ($4,813) ($5,024)
Insurance ($3,961) ($1,000)
Maintenance ($6,044) ($1,575)
Utilities ($1,987) ($2,363)
Miscellaneous ($35) ($80)
Profit ($8,986) ($246)
Mortgage & Loan Principal $5,845 $5,913
Profit Plus Principal ($3,141) $5,667

So after two years, we have finally turned profitable to the tune of… $2,526. Not huge, but everyone has to start somewhere, right? And if my 5 hours of work per month is correct, that is $21 per hour.

On the plus side, our profitability has seen a huge swing from Year 1 into Year 2. We basically ended our second year with $9,000 more in income than we made in the first year. The big swing is due to a few things:

  1. Spending $4,500 less on maintenance. We repaired the chimney, had electrical and plumbing work done, and replaced several appliances in the first year. Much less this year.
  2. Taking in $2,000 more in rent.
  3. Spending almost $3,000 less on insurance… although that’s due to a timing difference. Whoops! Looks like we paid part of Year 2’s insurance in Year 1.

What is our Return On Investment?

That may be a silly question after just turning profitable, but let’s do the math anyway.

Out of pocket, our down payment and closing costs were $12,456 in cash, so let’s call that our initial investment. $25,000 of our 20% down payment came from that home equity loan.

ROI = ($2,526 profit/$12,456 investment)/2 years = 10.1% annualized

OK, that’s actually not so bad. Ten percent is good for passive investment income, but income from a rental property isn’t truly passive income, no matter what the personal finance commentators might suggest. I’ve never had Coca-Cola ask me for a lawn mower or ask to have the heat turned up. They just pay me dividends! So maybe the better measure of rental property income is the hourly wage I attempted to calculate above.

Do you have an investment property? What is your return and how do you measure it?

Our Rental Property – The First Year

Rental House (13)Just a quick update here on how our rental property is doing. The last time we checked in, we were basically running a $10,000 loss! This was our first seven months owning the property, and I blamed the loss on the start-up maintenance to get the house in tip-top shape, the heating bills for the winter months, and well, the lack of tenants, since the house was vacant when we bought it and it took time to find people.

I predicted that the next five months would be profitable since we had tenants, and didn’t expect too much in the way of maintenance. And mostly, that’s been the case! Our rent payments have been rolling in electronically through Cozy. And we haven’t had any major repairs. Basically, all I’ve been doing is going over to mow the lawn.

One bad thing: We were just informed by our first tenants that they will be leaving after their year lease is up! Argh! That’s just how life goes for a landlord I guess. So soon we will have to filter through the punks and rejects to find some more worthy tenants.

Here’s how the first twelve months went.

Rental Income

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Our Rental Property Income Statement, The First Seven Months

Rental House (22)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.

Rental House (13)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 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!

The Numbers

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.

Rental Income
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.

Rental Expenses

Mortgage Payments $5,307.75
Home Equity Loan Payments $784.49
Property Taxes $3,606.61
Insurance $2,351.00
Maintenance $5,317.35
Electric $427.33
Gas $542.16
Water & Sewer $102.65
Miscellaneous $35.00
Total Expenses $18,474.34
Less Loan Principal 3,255.24
Expenses Less Principal $15,219.10


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.

Rental House (5)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.

IMG_5966The 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?

DIY Retirement Income: Pension Vs. Savings Vs. Rental Property

I’ve been thinking a lot lately about income during retirement. In the personal finance “blog-o-sphere” it’s always about hitting that financial independence milestone, where your annual expenses are 4% of your total investments, so you can live off of entirely passive income.

That’s a nice idea. But who said you had to rely just on dividends and withdrawls from your investments in retirement? There are other options. Today I’m going to be comparing and contrasting two other options we have available.

The pension

Rabbits: Content without a pension

Rabbits: Content without a pension

I work for a huge employer that still offers an honest-to-god pension. So the pension has always been a part of my retirement planning. And so it is for everyone else who works for this employer. In fact, from the way they talk, you’d think they were all planning to be completely reliant on the pension to cover their living expenses!

The talk is always about how many years they’ve put in, or how many years they “have left.” Like it’s some kind of prison sentence. I don’t know if this is an actual reflection of people’s financial standing, or just a misunderstanding of how pensions work, but everyone seems dead set to work at least 30 years, no matter how old they would be by that point.


Hopefully this picture will illustrate how many numbers we’re looking at today

The basic pension rules

Under our pension system, for up to 20 years of work, you get 1.66% of your final salary for each year worked. Once you hit 20 years, you get 2% for each year. And then at 30, it drops down to 1.5% for each additional year. So between years 19 and 20, you get a jump from about 31% to 40% of your income. Then it becomes less lucrative to stay longer than 30 years.

Pensions aren’t paid until you’re at least 55, and there is a penalty if you don’t have at least 30 years at that point. That penalty is reduced for each year you delay taking a pension until age 62, when you are not penalized at all.

But what does it practically mean to take a pension early? Let’s look at someone with a salary of $70,000:

Taking retirement at age 55:

15 Years of Service $12,770
20 Years of Service $20,440
25 Years of Service $25,550
30 Years of Service $42,000


Taking retirement at age 62:

15 Years of Service $17,493
20 Years of Service $28,000
25 Years of Service $35,000
30 Years of Service $42,000

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My Review of Cozy for Landlords

For newcomers, hello! We’re Norm and Marge. We’re thirty-somethings who are using frugality to fast track our way to early retirement. Our rental property is just one part of the plan. If you’re interested, read elsewhere on the blog about how we max out our retirement accounts and keep our expenses low by analyzing every purchasemaking our meals at homecommuting smartly, using cheap cell phones, and traveling as cheaply as possible.

Before Marge & I even bought a rental property, I was looking into easy ways to collect rent. For me, the dream of owning a rental property is all about watching the monthly payments roll in. Instead of imagining all of the work that would go into running a property, instead I started investigating ways for tenants to pay rent online. Possibly, this is what all early retirement types fantasize about in their spare time. Passive income just showing up in the bank account.

There are some leaders in this online rent collection space who I won’t name, but overall, I was surprised that there wasn’t really one agreed upon website for processing tenant payments. After reading some positive reviews and seeing how they kept expanding their box of tools available to landlords, I decided to start an account with, a startup based in Portland, Oregon.

CozyCo_logoI initially wanted to join Cozy for the rental payment system. There’s no charge for collecting rent electronically, which is more than can be said about some of their competitors. But I also really liked the additional services they have set up before you even have tenants.

Firstly, and this is very recent, you can make a listing for your property online. Similar to other listing services, you can upload photos, write a description, put your contact information and check off the applicable amenities. That’s great. I don’t know how many people are finding listings on, so it’s definitely not a replacement for Craigslist or your favorite real estate listing website, but it’s nice that it’s there.

Then from the listing, prospective tenants can click through to go to an online application. You can also just straight up link to the application on Craigslist, which is where we’ve found all of our tenants. Cozy’s website is the only way I accept applications. I want to use as little paper as possible as a landlord. I am bound to just lose paper, forget to make copies of things I need, etc.


When people apply through Cozy’s rental application, I get an email alert, and their application appears on the website. This was also nice because I didn’t want to have to search for an example of a rental application to use. Their application includes spaces for a references, work history, contact information, and even a little bio which some of our tenants have filled out in rather adorable ways.


Also you’ll notice, one nice detail is that Cozy will calculate what percentage of the applicants’ income will be spent on your rent. This is an important metric to vet your tenants’ by. And as soon as you visit the site to see a new application, there is a nice percentage in the corner.


The number one best thing about the application process, though, is that you can require a credit and criminal background check before the application is submitted. I love this. I require both checks with any application, and applicants do it right through the Cozy website. Once someone applies and fills out the background and credit check, the application and credit check come in almost immediately. The background check sometimes takes an hour or two to come back. But I get everything and it’s all linked together with their application on the website.

What I don’t like is that Cozy kind of markets their credit and background check as free. Well, it’s free to you, because the tenant has to pay for it. It’s $34.95 to complete both. I don’t know how common it is to have your tenants pay to have these checks done. So I tell my applicants up front, if I accept you, I will refund you the $34.95. It’s definitely been worth it. I can even adjust the first month’s rent bill on the website so their bill is lower by $34.95.


Nice to see this

Basically the only thing I do outside of Cozy is verify employment. I require two weeks’ paystubs (this is too difficult for some people). Now wouldn’t that be great if an applicant could upload a photo of their paystub directly through Cozy’s mobile site? Then I’d be all set. I wouldn’t have to ask for anything. The website would be doing all the work! Uh, Cozy, is anyone listening?

Machines can do the work, so people can think. Which reminds me of one of my favorite videos…

Once you’ve approved someone, you can set up their lease on the website, and link your bank account to it. The tenant can then link up their bank account and either pay manually each month or set it to draw automatically. There are other options like not allowing partial payments, which is important because if you are thinking of evicting someone, if you accept even a partial payment, that can constitute your acceptance of it as a month’s rent in court.


The website keeps a ledger of payments. As you can see here, these tenants paid their security deposit and first month’s rent as money orders, so I created an Offline Payment to credit their balance on the website. Otherwise, this all happens automatically. Both of our apartments’ tenants pay through Cozy, and that has worked flawlessly, although the payments take 5 days to show up.

I am fairly lenient on payment dates. I have it in my lease that if they were sending a check, it would have to be postmarked by the 5th business day of the month. Similarly on Cozy, I want the payment made on their side by the 5th business day. The fact that it doesn’t actually hit my bank account for a week doesn’t bother me. So if immediate payment is an issue for you, you should know that your rent will not show up for a week. You can blame America’s antiquated ACH system for this more than you can blame Cozy.

So in short, so far my experience with Cozy has been great. It’s taken out a lot of the paperwork, footwork, and just plain work, from vetting tenants and accepting payments.

What about other rent collection services?

Cozy is far from the only landlording website. There’s Rentulations, TenantCloud, TurboTenant… I haven’t tried them, but lucky for you, Domenick at Accidental Rental has, and he’s done a bang-up comparison of all of these services so you can make an informed decision!

If you own a rental property, how do you collect rent and screen tenants? Do you hate paper as much as I do?

How To, And How Not To, Rent An Apartment From Me

Today I’m going to give you a glimpse into our experience so far renting out our investment property.

After finally listing our two apartment units online in early September, we have had a grand total of four people come by to see the apartments in person. Why so few? Probably because the prices, $1,100 and $950 a month, are among the highest in the neighborhood. Four looky-loos isn’t a great total after having the apartments listed for a month and a half (although, to be fair, we were gone for two weeks in Japan) But do you know what average is good?

Every person who has come to see either of the apartments has applied to rent them.

I’ve found that you can write the greatest online ad take the most perfectly lit photos. It doesn’t matter so long as your rental is the most expensive in the neighborhood. But as long as it’s worth the rental price and even exceeds people’s expectations, it’s just a matter of getting people to show up and see the place in person, and you will have renters.

So far, we have had three people apply, only one of those we actually approved. [Yes, I said all four visitors applied. Technically, one was going to apply but was just beaten out by Case Study 3 (below) who visited on the same day, applied immediately and were accepted] So what lessons can you learn from these case studies when renting from me, your prospective landlord?
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Revealed: How To Make a 105% Return On Investment Revealed!

I’ve mentioned our rental property in fits and starts here. Long story short: We bought an old two-family house. It was built in 1890 and since then has only had a few owners. It’s in very good condition after being (almost) completely renovated by the former owners. We closed at the end of July and then got to work spiffing it up and getting it ready to rent. We bought it with the intention of renting out both floors.

Today I’m going to give you what our ideal return is on this rental property would be. By ideal I mean rented out for 12 months a year, with minimal maintenance expense. And then as time goes on, we can check back in and see what the reality is and how it compares! This whole rental property business is new to us.

A few weeks ago, we listed the first floor apartment at $1,150 a month and have gotten very few bites. The few bites we did get, through Craigslist, punked out and stopped responding to me. I’ll admit, $1,150 is on the high end for this neighborhood, but I figured all it would take would be to get someone in to view it for them to snatch it up. It’s just that good.

Well, after we listed the second floor apartment, I was almost proved right. The second floor is not as nice (I think) as the first, since it has smaller rooms, an older kitchen, and an odd layout. Still, it has all of the same new windows and floors as the first floor. I listed the second floor on a Saturday night for $950, we probably received five times as many replies, and by Monday night we had accepted tenants!

Basically, I think people search by price and bedroom count. So we’ve dropped the price on the first floor to $1,100. We’ll see…

So where are those numbers?

Let’s see. The house cost $134,000. I’ve shied away from leveraging debt before, but we ended up going whole hog this time. So while we took out a mortgage on about $102,000, we covered another $25,000 with a Home Equity Line of Credit. So much for being debt averse!

I did the HELOC for two reasons:

  1. We could still easily afford the mortgage and HELOC even if we had no tenants. Since we save about 50% of our income every month, we would just tap that down a bit.
  2. The obvious reason: Less cash outlay!

I see we actually paid out about $35,400 on closing day. Even though that includes expenses that aren’t even part of our down payment, I am just going to call that our down payment, subtract the HELOC amount ($25,000) and say we actually put down about $10,000 in cash out of pocket. That $10,000 down payment means our return, in ideal circumstances, should be pretty eye-popping.


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About That Rental Property

Completist readers of Ridinkulous will remember when I dashed off an entry about a rental property we were suddenly going to see the next day. So I’d thought I should give you an update on that and where we are now.

That rental property wasn’t a complete bust, but we decided it wasn’t for us. After seeing it in person, Marge and I each secretly wrote down a number from 1 to 10 to indicate our level of interest in it without discussing it beforehand.  I wrote down 5, and Marge wrote 3.5.

The house purports to be built in 1890, 30 years after our house was built, but there were so many similarities to our own house, I doubt 1890 is correct. Doorways were in different places and rooms were different shapes, but you could tell, this house was the same design. I knew our house had a doorway into the living room from the foyer at one point because you can kind of see the shape in the plaster. This rental property still had that doorway! We nerd out about old house stuff, so it was interesting to see some original layout details. Continue reading

Rental Property Advice Emergency!

Dashing off a quick and unexpected entry today. Suddenly, we are interested in buying a rental property!

A little background. I have been bouncing around the idea of buying a rental property ever since we bought our house in 2008. Since then, I’ve probably bought four Rental Properties for Dummies-type books on the subject.

On the plus side, it would create a new income stream. It seems like everyone who is financially independent has rental income. On the negative side, things can go wrong. Owning a rental property means work. And the biggest of all, buying a rental property runs roughshod into my biggest financial goal: Destroy All Debt Forever.

See, the only way to make a good return on an investment property is to take out a mortgage, thereby establishing a cash flow with only a small down payment. If you were to pay cash for a building outright, the rental income would be the same, but ROI would suck.

So while I haven’t been super-serious about searching out rental properties, I have kept it in the back of my mind. I am really only interested if it meets my critera:

  • Close to home, ideally within walking distance and the historic district.
  • Between 2 and 4 apartments.
  • Costs less than $50,000 per apartment.

Luckily, where we live, housing is affordable. Our 1,900 square foot house cost us $130,000 in 2008. Rental properties are even cheaper. Marge and I have even tossed around the idea of basically owning our entire block, a rental empire! At these prices, this is not so far-fetched. So I had an alert set up for multi-family homes in the area. It went off yesterday. Ding ding ding!

About the house: It is a two-family and lists under $100,000. Both apartments have two bedrooms and one bathroom. It’s a historic building that the listing claims was built in 1890, but from the outside at least, it looks just like our house built in 1860 which is just down the street. The outside is really pretty. Green painted brick with red accents. They even have a walled-in porch.  It doesn’t look like many abuses of history have occurred, like vinyl siding.

I can only speak to the outside, because there are no photos of the inside. A previous listing shows photos, but only odd fisheye lens photos with an HDR filter applied making it impossible to tell what size the rooms are, or even if those are stains on the carpet or just effects from the filter. Yes, this house was previously on the market last year for $10k more and didn’t move, which concerns me. Although this new listing says there is all new plumbing, carpet and paint.

A 30 year mortgage would probably mean monthly payments of $350, and a 15 year mortgage would mean payments of around $510. Not bad! Those crazy low payments of $350 are very appealing, but the rates on 15 year mortgages are under 3% right now and that’s even more appealing. Of course, I’m not sure if the rates for multi-families will be that good.  Property taxes are probably around $3,000 a year, and you have to add insurance.

If everything went right with this building, the return on the investment of our down payment could be 70%.  Of course, that’s given that the two apartments are both rented out, and there are no maintenance issues! I don’t see many empty apartments in our neighborhood, so I don’t forsee big vacancy issues. Apparently, the current owner is also an accountant who thought “the numbers looked good.” But he lives out of the area, had a bad tenant, and wants to get out badly. The real estate agent told us this. Is this house cursed for accountants who think the numbers look good? Uh oh.

But you see my point. Nowhere could you make a return like that on your $18,000 down payment investment. I even looked ahead to age 55 when I could begin to collect my pension, and a two-family rental would produce almost as much as the pension!  Meaning that a couple rentals like that and I wouldn’t even have to worry about how much my pension was.  And so I think I have to swallow the idea of Destroy All Debts Forever, shove it deep down inside for a while, and think about this cash flow.

Anyway, we’re going to look at the building in person tomorrow.  I guess I’m here to ask, does anyone have any tips on what to look for when inspecting this house? I mean, we should be the best judges since we live in a very similar house in the same neighborhood and would be familiar with the problems. It is totally vacant right now, so we should get a clear look at everything. I just have never looked at a rental before.

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