Finance Dave
Thinks s/he gets paid by the post
- Joined
- Mar 29, 2007
- Messages
- 1,861
Wow...housing market is hot here (midwest).
We had 5 rental units for the past 13 years...I managed them. Cash flow was excellent, with the typical occasional tenant issues. But due to a variety of factors...
1) I'm getting old and don't want to work on them anymore...I did most of the labor (I have been a handyman for the past 4 years...so it makes sense)
2) Wife is concerned that if I passed away young (no, I'm not terminally ill lol) that she'd have to deal with all the complexities of liquidating the business
3) RE values are way up here
4) Tenants moving out en masse
we decided to slowly unwind the business. We sold one unit in late 2021, 2 units so far this year, one more pending and should close within a month, and then we plan to sell the last unit in early 2023.
Take a look at these results:
Unit 1 - Bought for $54k, sold for $122k "as is"...cash offer, no inspections, no repairs required. The tenant had damaged some things, but the buyer took responsibility for all repairs. Collected $5.1k in damages from tenant through court-ordered judgment...paid bi-weekly via garnishment...all has been collected now. Also kept their SD of $1,000. If you add this to the sale price, we can say we essentially sold it for $128,100.
Unit 2 - Bought for $72k, sold for $166k...inspection found no repairs needed...I had spent about 6 weeks (about 15 hours/week) fixing this one up significantly...fresh paint throughout, painted cabinets, much more...but mostly labor...only $1,500 in materials.
Unit 3 - Bought for $76k, sold for $135k "as is"...cash offer, no inspections, no repairs required. Tenants left this one a mess, but the buyer took responsibility for all repairs. Collected $5.5k in damages from tenant through court-ordered judgment...paid it all in one check. Also kept their SD of $1,200. If you add this to the sale price, we can say we essentially sold it for $141,700.
Unit 4 - Bought for $91k (this one was "move in ready", so paid a premium), pending sale for $167,500. Tenant left it mostly clean, so only kept $200 of their deposit. Inspections/appraisal/financing all passed and are in order, no repairs needed, closing set for 10/18/22.
Unit 5 - Bought for $29k (this one was a total mess when purchased, had to put about $35k in it before renting), will be sold 2023. Estimated sale price of $155k. Probably will need some repairs...let's estimate $5k...we will keep the SD of $1.1k, but unsure whether we can collect any more...we shall see. If we deduct off the large spend upon purchase and add the SD, let's say we end up netting $87k.
Negotiated with our realtor that the first house we'd pay the "usual" 6% realtor fee, but the rest would be at 5%, or if we were able to sell to an investor before listing in MLS, she'd do 4.5%. We sold two via an investor before listing in MLS, so saved additional .5% there.
I won't go to the trouble of adding up all the numbers exactly, but here are the takeaways:
1) We had excellent cash flow for 13 years (all were bought with cash, no mortgages), about 68% of the rental income was profit.
2) I was a licensed home inspector for 7 years prior to being a handyman, so I focused on maintenance...and therefore very few service calls...we averaged only 1.2 unscheduled repair calls a year for the last 11 years (the first two years were rough...had to get all the properties up to good repair).
3) Still haven't seen the tax bill for most of these...so we shall see how this affect us...but we spread the sales out over 3 years to minimize...and did not take any withdrawals from retirement accounts this year since we sold 3 and don't want to move up in tax bracket.
4) My original reason for getting into rentals was to diversify out of equities...so we bought 5 because that gave me the % in real estate that I wanted...then we stopped buying.
5) With the proceeds from the sales, we are using some to live off, and the rest is going into our FIDO investment account (non-retirement)...where we mostly have it in short term CDs and munis.
6) Yes we paid agent commissions on the sales...you can do the math but to keep it simple let's say 5% on $750k...or $38k
Very rough numbers here, but on a $357k initial investment, we "built" a $722k asset (about $750k less $38k in realtor commissions) over 13 years. This may not sound like a great return, but remember we had excellent profits and cash flow the entire 13 years (well, not so much the first 1.5 years lol...lots of start-up costs/issues).
I guess I could spend a few hours and do an overall analysis with the annual cash flows included, but I'm too lazy lol. Let's simplify and say our average rent was $900/mo, and 2/3 was profit...so $600/mo x 5 properties x 12 months, or $36k/year.
Overall I'm very happy with how this has worked out, DW is happy that we're "simplifying" our lives, and by about March of next year we should be completely clear of the business.
We had 5 rental units for the past 13 years...I managed them. Cash flow was excellent, with the typical occasional tenant issues. But due to a variety of factors...
1) I'm getting old and don't want to work on them anymore...I did most of the labor (I have been a handyman for the past 4 years...so it makes sense)
2) Wife is concerned that if I passed away young (no, I'm not terminally ill lol) that she'd have to deal with all the complexities of liquidating the business
3) RE values are way up here
4) Tenants moving out en masse
we decided to slowly unwind the business. We sold one unit in late 2021, 2 units so far this year, one more pending and should close within a month, and then we plan to sell the last unit in early 2023.
Take a look at these results:
Unit 1 - Bought for $54k, sold for $122k "as is"...cash offer, no inspections, no repairs required. The tenant had damaged some things, but the buyer took responsibility for all repairs. Collected $5.1k in damages from tenant through court-ordered judgment...paid bi-weekly via garnishment...all has been collected now. Also kept their SD of $1,000. If you add this to the sale price, we can say we essentially sold it for $128,100.
Unit 2 - Bought for $72k, sold for $166k...inspection found no repairs needed...I had spent about 6 weeks (about 15 hours/week) fixing this one up significantly...fresh paint throughout, painted cabinets, much more...but mostly labor...only $1,500 in materials.
Unit 3 - Bought for $76k, sold for $135k "as is"...cash offer, no inspections, no repairs required. Tenants left this one a mess, but the buyer took responsibility for all repairs. Collected $5.5k in damages from tenant through court-ordered judgment...paid it all in one check. Also kept their SD of $1,200. If you add this to the sale price, we can say we essentially sold it for $141,700.
Unit 4 - Bought for $91k (this one was "move in ready", so paid a premium), pending sale for $167,500. Tenant left it mostly clean, so only kept $200 of their deposit. Inspections/appraisal/financing all passed and are in order, no repairs needed, closing set for 10/18/22.
Unit 5 - Bought for $29k (this one was a total mess when purchased, had to put about $35k in it before renting), will be sold 2023. Estimated sale price of $155k. Probably will need some repairs...let's estimate $5k...we will keep the SD of $1.1k, but unsure whether we can collect any more...we shall see. If we deduct off the large spend upon purchase and add the SD, let's say we end up netting $87k.
Negotiated with our realtor that the first house we'd pay the "usual" 6% realtor fee, but the rest would be at 5%, or if we were able to sell to an investor before listing in MLS, she'd do 4.5%. We sold two via an investor before listing in MLS, so saved additional .5% there.
I won't go to the trouble of adding up all the numbers exactly, but here are the takeaways:
1) We had excellent cash flow for 13 years (all were bought with cash, no mortgages), about 68% of the rental income was profit.
2) I was a licensed home inspector for 7 years prior to being a handyman, so I focused on maintenance...and therefore very few service calls...we averaged only 1.2 unscheduled repair calls a year for the last 11 years (the first two years were rough...had to get all the properties up to good repair).
3) Still haven't seen the tax bill for most of these...so we shall see how this affect us...but we spread the sales out over 3 years to minimize...and did not take any withdrawals from retirement accounts this year since we sold 3 and don't want to move up in tax bracket.
4) My original reason for getting into rentals was to diversify out of equities...so we bought 5 because that gave me the % in real estate that I wanted...then we stopped buying.
5) With the proceeds from the sales, we are using some to live off, and the rest is going into our FIDO investment account (non-retirement)...where we mostly have it in short term CDs and munis.
6) Yes we paid agent commissions on the sales...you can do the math but to keep it simple let's say 5% on $750k...or $38k
Very rough numbers here, but on a $357k initial investment, we "built" a $722k asset (about $750k less $38k in realtor commissions) over 13 years. This may not sound like a great return, but remember we had excellent profits and cash flow the entire 13 years (well, not so much the first 1.5 years lol...lots of start-up costs/issues).
I guess I could spend a few hours and do an overall analysis with the annual cash flows included, but I'm too lazy lol. Let's simplify and say our average rent was $900/mo, and 2/3 was profit...so $600/mo x 5 properties x 12 months, or $36k/year.
Overall I'm very happy with how this has worked out, DW is happy that we're "simplifying" our lives, and by about March of next year we should be completely clear of the business.
I'm saving your post to show them at the proper time. Every little bit of persuasion helps! 
