Welcome to my July 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.
Woohoo! Maximum cash flow achieved this month. Just a rent check minus the monthly PITI and management fees.
July’s net cash flow came out to $520.
Here’s the roll-up cash flow for rental property (RP) #2.
The tenant moved in at the end of the first week of July so they paid a prorated amount for July. Since they moved in on the 7th, the prorated rent was $968 ($1250 x 24/31 days in July). They also paid upfront a full month’s rent to cover August’s rent. So depending on whether they pay for September early, next month’s cash flow report may not have any income.
This property was in the red again this month. Why? Well, look at all those expenses! When you have a property manager fill a vacancy with a new tenant, they charge owners a leasing fee. Leasing fees vary across property managers where many charge some percent of the first month’s rent (i.e. anywhere from 50% to as high as 100%) and others I’ve seen charge a flat fee such as $750 to place a new tenant. My manager charges 75% of a full month’s rent, which comes out to $937.50.
In case you’re wondering why there’s a leasing fee and a property management fee being charged for the same month, that’s not a mistake. The property management fee (9%) is to cover the rest of the month of July. The leasing fee (75%) applies to the first full month’s of rent, which technically will be in August. So that means in August, I should not be charged any management fee. If next month comes and I see that I’m charged again for a management fee, I’ll have to bring this up to my PM to fix this. If I forget, hopefully someone can remind me 😉
Then there was some additional turnover costs prior to the tenant moving in. These included lawn care and cleaning.
Lastly, there was additional maintenance that came up unexpectedly. The tenant had moved in and immediately the work orders starting come in. Repairs included:
- Fixing a leaking dishwasher and faulty door that needed to removed and secured
- Fixed broken side gate that wasn’t closing
- Replacing bulbs above the stove
- Unclogging both bath tub drains and lavatory
- Installing closet rod
- Install furnace filter
- Replacing shower handle
- Replace a motion light outside
- Checking A/C system
All of these maintenance items came as a real surprise given that the PM had told me that the previous tenants left the house in excellent condition.
So what happened?
The PM had some organizational changes during the past month right in the middle of my vacancy. The maintenance lead, who was supposed to oversee the turnover inspections, quit. As it turns out, these inspections weren’t done sufficiently according to their checklists because my tenant ended up finding a ton of these issues! Imagine being the tenant who moves into a house only to find half a dozen or so dysfunctional items! This leaves a terrible impression on our new tenant by both the property manager and myself as the owner.
So what’s next?
Well, I discussed my concerns with the owner of the PM company. The long list of repairs that went unnoticed during my looong vacancy just didn’t sit well with me. The PM owner understood my concerns, but assured me that when they did find these items, they were quick to repair them. He also agreed that the lengthy vacancy was not ideal and stressed that minimizing turnovers is of their utmost importance.
On the bright side, my property is now rented. I’ve worked with my PM for over 2 years now and during that time they’ve provided amazing value in helping me acquire, rehab, and manage my properties. I’m focusing on that for now. Lastly, I plan to reflect on what I can do better as an investor to prevent something like this from happening in the future.
Net cash flow for RP#2 for the month of June came out to –$44.
Net cash flow from both properties: $476
What do you all think of this month’s cash flow?