Welcome to my June 2016 cash flow report!
Each month I document how my rental properties (RP) are performing in order to track my monthly cash flow. I share both the good and the bad, as well as any lessons learned from investing in out-of-state rentals.
For these income reports, I’ll report everything as they occur. That means if no rent came in, there will be a big fat zero. The same goes if there were no maintenance issues for a given month. This is different from when I analyze a potential property that I’d like to invest in. Where in that case, you’d always see some estimated maintenance expense, as well as a vacancy loss, capex, and more in order to appropriately determine my projected cash flow and cash-on-cash return numbers.
Without further ado, let’s jump into this month.
Here’s the roll up cash flow summary for rental property (RP) #1.
The full month’s rent of $1200 was collected. This tenant paid late and in chunks this month. First, they paid a few hundred dollars on time before the 5th of the month. Then a few more hundred dollars came in late with a $30 late fee. Lastly, they paid the remaining balance well into the end of the month with an additional $30 late fee.
Having a late paying tenant definitely is not fun, but hey it’s better than a payment that doesn’t pay. My property manager (PM) keeps the late fees since they do additional work to make contact with the tenant and hassle them to bring in the rest of the rent payment.
Additionally, there was one maintenance issue this month where a plumber was needed to clear out a backed up drain. Someone (by someone I mean the tenants) were throwing away baby wipes down into the toilet. Plumbers cost quite a bit more than regular handymen so $184 of labor down the drain.
June’s net cash flow came out to $336.
FINALLY, found a qualified tenant! I mean…FINALLY.
The new tenant met all of our qualifications and passed our credit, criminal, and rental background checks. The high points of what I’m looking for in a new tenant are the following:
- Gross monthly income > 3x rent
- Verifiable employment history and income
- Credit score > 600
- No evictions, foreclosures, or bankruptcies in last three years
- No felonies in last 10 years
The new tenant doesn’t move in until the 1st week of July. So in total, I will have had just over 8 weeks of vacancy. I know, 8 weeks is a long time. Having a Class B property near great schools vacant during the months of May and June was completely unexpected. My previous tenants broke their lease early and moved out by the end of April. Since they broke out of their lease early, they did agree to pay an additional month of rent and we were keeping the security deposit (see May’s cash flow report). These funds definitely helped because despite having known in advance that they’d be moving out, it still took over 8 weeks to find new tenants that were qualified.
What Was Done During the Vacancy Period?
When your investment property is not getting rented out, there’s usually a reason for that. Maybe the rent is too high or there’s a strange smell in the house.
In my case, we started the rent at $1295 which was just at the market rent for that area during May. In hindsight, this rent was on the high side of the market. I ended up reducing it down to $1250 after 3 weeks of no applications.
We also had the exterior of the house freshly painted and the backyard deck re-stained. The thinking here was that by painting the exterior we would really make the property shine and generate more potential applicants. Plus, there was some wood rot that needed to be taken care of and painting is a good preventative measure against further wood rot.
Here’s a before and after photo below.
For anyone interested, I used the following 3 colors from Sherwin Williams:
- Summit Grey SW 7669 – exterior siding/walls
- Extra White SW 7006 – all trim including around windows, front porch, and railing
- Heartthrob SW 6866 – front door and window shutters
So here’s the roll-up summary for June.
As you can see, vacancies hurt. No income this month, but still had to pay the usual PITI (principal, interest, taxes, insurance) and then some. There was the electricity and water to be paid. As well as some maintenance in adding downspout extensions that were noticeably missing. Lastly, the biggest chunk of change was in painting the house and re-staining the deck. So I’m in the red this month by a lot.
Net cash flow for RP#2 for the month of June came out to –$3,841
Net cash flow from both properties: –$3,505