My Monthly Cash Flow Report – November & December 2016

Cash Flow Report

Each month I’ve been providing an inside look into my rental properties out of state. I detail my incomes and expenses as I receive them. With another year in the bag, here’s my cash flow report for months November and December.

RP#1

Here’s the roll up cash flow summary for rental property (RP) #1.

Here are the highlights:

  • Rents paid minus the usual PITIM (Principal, Interest, Taxes, Insurance, and Management.
  • Received a credit of $205 that I paid back in September since this was really a tenant caused issue.
  • Expensive tree trimming – I’ll explain below.
  • Fan Replacement

Rents…Better Late Then Never

Each time I receive 100% of my rents, I breathe a sigh of relief. A year ago, these same tenants were over a month behind in payment. Despite being the holiday season, we filed a notice of eviction to light a fire under our tenants. They chipped away at their rent were caught up by February of this year.

This year, they’ve continued to be late on many occasions. On the bright side, they always manage to pay in full and with a late fee. These past 2 months were no different. Both were late, but they paid in full. Getting rents late are better than not being paid.

Overgrown Trees

Back in October, the tenants notified my PM that the two oak trees on the property were very overgrown. With the high winds that can often hit the area, they were worried of dead branches falling in the backyard, front yard, and even on the roof.

I haven’t had the trees trimmed since I purchased the rental back in 2014 so it was about time.

After doing a bit of research, I decided to go with an established tree trimming company in the area. They had great references, were very knowledgeable of the type of oak trees I had, and showed proof of current licenses, certifications, and insurance (including worker’s comp).

The cost was nothing to sneeze at. I ended up paying $1350 for a day’s work for a team to work on
two massive oak trees. They removed all dead branches and did a full trim so no limbs posed a risk to my tenants, the power lines, or the house. Hopefully, I shouldn’t have to trim these trees for a couple years.

Lessons Learned

Two lessons I learned from this experience are the following:

  1. Consider the type and quantity of trees a property has in future purchases because they will impact your maintenance cost.
  2. Get multiple contractor bids and don’t just go with the PM’s first bid.

The first point is pretty self-explanatory, but let’s discuss point #2.

My PM first provided me a quote of $500 for both trees. I asked for a 2nd bid, which came back at $1200.

Whoa, whoa, whoa. Something didn’t sound right.

These two bids were very far off from one another. So I asked for more details and their contact information so I can interview these guys myself. In the mean time, I searched for my own bid, which (spoiler alert) I ended up choosing in the end.

Upon talking to each of the PM’s recommended contractors, I learned that the quotes they provided were for very different jobs.

The $500 quote was by a guy who really had no expertise in tree trimming. I asked if he knew what type of trees were at my house and he said he did not know. He then explained that he could not trim high branches because he’s limited by the length of his trimmer pole. He did add that he could probably stand on my roof and try to trim higher branches with his pole from there. Lastly, he gave the impression that he simply did tree trimming on the side and whenever jobs came up. Overall, I was not impressed.

The $1200 quote was by a guy that seemed to trim trees for a living. This quote involved more extensive trimming then the first guy. The only gripe I had was that he wasn’t very professional over the phone. He often repeated that “once it’s done, it’s going to look real nice.” I’m a detailed guy so I like to hear some specifics, especially if I’m paying you over a grand for it.

In the end, I went with the most expensive contractor who I found to be the most professional.

RP#2

Here’s the roll-up cash flow for rental property (RP) #2.

Highlights:

  • Old tenant moves out in mid-December, but not before paying $1250 for a full month’s rent (paid early so shows up in Nov). Win!
  • $1400 security deposit kept due to breaking lease. Win!
  • New tenant moved in and paid $551 (pro-rated for December). Win!
  • $915 lease up fee paid. Loss!

Compared to my last turnover where I had 2 months of vacancy, this one’s been smooth sailing! And being in the middle of December with Christmas around the corner. I’m surprised it went so smoothly.

Another Lease Fee?

My PM (property manager) charges 75% of a full month’s rent for signing a new lease. Back in July of 2016, we signed a new tenant and I had paid $938. The tenant was supposed to stay for 12 months, but only after a few months she notified the PM that she was going to break her lease.

So here’s a question.

Do you think new lease up fees should be charged by the property manager every time a new tenant signs a lease? Even if that means multiple lease up fees per year?

I’ve talked with a few investors about this. From the investor point of view, obviously any time there are additional fees, that’s not a good thing. It cuts into our cash flow. Given this property is managed 12 months out of the year, there’s already a big chunk (~10%) that is going toward management fees.

However, in this case, a lease up fee was paid just 6 months ago. So technically, what I paid back in the summer had not panned out. I paid $938 for a tenant to live there for at least 12 months, not half a year!

From this perspective, I believe the PM should waive this lease up fee. Otherwise, there’s actually an incentive for a PM to find tenants that stay short term. Then multiple lease up fees would be charged in a year. Under this structure, investors won’t be profitable.

In anticipation for this turnover, I’ve repeatedly asked my PM for confirmation that I would not be responsible for paying an additional lease fee. However, my emails went ignored and I failed to follow up during the holidays. And BAM! There’s the fee in my December statement.

I sent out another email about this charge so stay tuned.

Cash Flow Summary

November’s Net cash flow: $1,081

December’s Net cash flow: $655

Do you think PMs should charge a lease up fee every time they sign a new tenant, even when the previous tenant fails to stay for 1 year? 

8 thoughts on “My Monthly Cash Flow Report – November & December 2016

  1. That tree quote example is a reason why I have the hardest time going with a PM. You ended up having to research yourself anyways. The quote no one is going to look after your money or property better than you comes to mind. We manage our property ourselves and it’s stressful but since it’s an accidental property we would be in the hole if we used a PM. Maybe someday. I also totally agree on the fee. It gives them incentive to find short term tenants.

    • If the property is local and you’re starting out, then managing yourself is what I always recommend. People are sometimes surprised I say this given the name of this site. Though one of the biggest downsides with out of state investing in my opinion is giving up direct control of your asset and having to rely on someone else. That someone else may be great or cost you thousands. It can be a crapshoot.

      Many argue that their time is worth much more than the 10% or so of PM fees and that their time is better spent on acquisition. Though for new investors starting out, I think the experience gained from self-managing will set them up for future success in 2 ways. One, they’ll learn all the functions and skills needed by a good PM, which will come in handy should they later choose to hire management. Two, operating a profitable real estate asset early on by keeping operating costs to a minimum sets up some big mental wins that will motivate investors to keep adding to their portfolio.

      So despite the stress in managing yours, I think if you ever choose to hire out, you’ll be great at calling any BS the second you see it.

  2. Hey OB! Bummer about the tree expenses. I’ve run into that problem too. I chalk it up to the cost of doing business but it is still hard to stomach. 🙂

    So, when I pick a property manager, I make sure they have either a 6 month, or preferably a 12 month lease guarantee. If a tenant moves out within those periods, there will not be a leasing fee.

    When you think about it, they are the ones selecting the tenant and are ensuring they will be tenants in for a certain period. It is their fault for picking the wrong tenant and need to find another tenant for you. This is a part of their job. Worse case scenario, they find horrible tenants that move out every 2 months. The PM makes $1000 every two months rather than once a year.

    So, I try to make sure it is in the management contract from the beginning. When I interview PM’s I make sure this is discussed.

    Keep up the good work!

    • Could not agree more! Funny, I’m looking over the fine print of our contract and sure enough, in black and white, there it is. “Should a tenant not remain for the term of the lease or twelve months, whichever is shorter, there will be no new leasing fees assessed to re-lease the property.”

      Sent another email with this information and asked for a credit. You’d think a PM would know their own contract, but my guess is their system is automated for calculating new lease fees when new tenants sign. Just an example of managing the manager.

  3. Hey OB! What I’ve seen with the lease-up fee is if the tenant moves early, the PM either re-rents it for no fee, or pro-rates the fee for the length of time that the tenant actually stayed. If you expected a year and only got 6 months, they might waive half of the fee.

    Sounds like you’re doing a great job! Congrats! 🙂

    • Hi Yeti! I definitely agree with no fee, but I can also the option to pro-rate in certain cases where the PM is not at fault. If a lease is broken because the tenant is not paying and you have to evict them, then that’s on the PM. But if the tenant legitimately loses a job or has an extenuating circumstance that in no way could have been foreseen by the PM, then I can’t really fault the PM. In such a case, I can see the rationale for pro-rating the lease fee. Though if the PM wants to guarantee a 1 year lease regardless of why the lease is broken, ultimately that’s the best service for an investor.

      Thanks for sharing this option. I had not known or heard of PM’s pro-rating their lease fee.

    • Hey Mas! Hope you’ve been doing well. The PM didn’t have any role in the tree trimming cost. I found the contractor myself, scheduled the work, and paid them directly. So this cost doesn’t even show up on my monthly owner statement. Though I did ask the PM to check in with the contractor on the day of the trimming. They failed to do so, but that’s the subject of another post.

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