First Time Landlords: Third Year Income Statement

Can you believe it?! It’s now been three years since we bought our first rental property! A lot has happened since July 2015. For instance… hmm… there was that time, uh… actually I can’t think of anything significant that’s happened since then!

In 2015, we were nervous first-time landlords. Now we are slightly more self-assured landlords with a second rental property. I still feel like something of an impostor pretending to be a landlord. I have learned things about home maintenance and am slightly handy, but I am still solidly an accountant at heart.  But we are 1/5 of the way into our fifteen year mortgage, which means we are at least 20% of the way done with our plan to get rich slowly, at least the real estate part of the equation.

On to our first property. If you want to read the journey of the first two years, go to this entry here. Basically, we bought a vacant two-family house for $134,000. It didn’t need much work, but it took us a while to get both units occupied. The cheaper one ($950) was easy. The second unit ($1,075) took some time. We’ve had some not-fun adventures along the way, but I think we’ve done pretty good.

Over the past year, there hasn’t been much change at this property. The only major thing was a burst pipe in the basement. The tenants were finding puddles of water intermittently, so we figured it was from the washer. Then when they went to turn on the outdoor hose, water gushed out of a hole in the pipe by the exterior faucet. There’s your problem! We had an expert fix it.

Here’s our three year income statement for our first property.

(data nerds take note: The first two “fiscal years” run from September to August, but I adjusted it so we’ll show a July to June fiscal year to line up with natural quarters, so that means our third “year” includes only ten months!)

So now, after (almost) three years, we are profitable to the tune of $9,550 after you include the principal in the house. Re-visiting one of my fun financial yardsticks, if we assume we’ve spent five hours of work per month on this property, that is 170 hours total, or a wage of $56 per hour. Even if we worked ten hours per month, that would be $28 per hour.

Some notes:

1. The insurance amount is lumpy because of the timing of the payments. And I should note that going forward, it will be much cheaper. Since we switched companies, our annual premium dropped from $2,802 to $1,400. That’s a lot!
2. This city government, in its wisdom, decided to implement a garbage collection fee. So while they used to charge about $60/year per home as a recycling fee, they now charge $160/year per unit for garbage which they had already been collecting as part of our property taxes anyway. So that’s $320 a year for us. There is a statewide 2% property tax, so to get around that, cities like to play games. I’m debating whether to increase rent to cover this stupidity.
3. We took out a $25,000 HELOC strictly to use as part of our down payment on this property, so I treat it as something like a mortgage payment here.
4. We also keep a rental emergency stash, along with our personal emergency fund. I keep $5,000 per property.

For fun, here is our income statement so far for our second rental property. Keep in mind, we bought this property on March 1, and had both units rented out on May 1, so there is very little to report so far.

See how similar it is to the first year of our first rental property. There’s a big cash outlay for maintenance for us to make up. In this instance, it was the hot water heaters that had to be replaced. The seller did give us a credit, but it wasn’t near how much it actually cost.

Also, that $3,077 annual insurance is very misleading, because it includes the cost of our original insurance with out old insurance company, and replacement from our new insurance company, but not the refund from the first policy. It will actually be $1,200 a year. The refund will show in the next fiscal year.

How are we doing? Good investment or no?