I purchased my first rental property in June 2018, and had it rented out by November of that year — almost four years ago to the date. I was 24-years-old with big dreams of creating my own little real estate empire, and a back-of-the-napkin plan on how I’d amass 25 rentals and retire ASAP. Here’s looking back to how I thought things would go, versus how they actually did.
STARTING OUT
As mentioned in a previous post, I bought my first rental property for $18,621. I spent the summer getting it fixed up, and had it rented out by early fall. It was exciting and nerve-wrecking all at once. Not that I had anything to be worried about — things went fairly smoothly, aside from having to replace the old hot water tank when it started leaking — but when you’ve spent literal years obsessively thinking and planning out your future rental property empire, it’s a bit scary when it’s finally time to put your money where your mouth is. In my case, I was working in a call center without too much money, but I did have great credit, which let me use a personal loan to buy the house, cash-out refinance the property less than a year later, and pay off the personal loan + credit card debt I’d accumulated while fixing the place up. When all was said and done, I had a rental property with $0.00 of my own money invested in it. Infinite ROI.
Lesson learned: If you play your cards right and live in the right area(s), you can get real estate for little or no money of your own invested once everything is said and done… but you have to get creative with the initial financing, and it’s important to have good credit.
TENANTS
I’ve been lucky enough to have the same tenants up until last month — a brother and sister pair who, for the most part, have been agreeable. Well, kind of. There have definitely been some issues, mainly regarding to the sister lying and pocketing her brother’s part of the rent, and the months that I let them slide by paying partial rent because of whatever sob story the sister fed me that month — but once I stopped dealing with the sister and instead dealt with the brother, who had no clue about any of this, harmony was achieved. Unfortunately, the brother decided to leave the state for a new job, and so now I’m dealing with just the sister… again. However, I’ve learned my lesson ten-fold: No more being a pushover and falling for every little sob story.
Some might wonder how on earth I allowed them to get months behind on rent without simply evicting them, or addressing the issue with both the sister and the brother. The answer is that (1) the fees for maintaining the property are only around $200/mo., and the partial rent always paid that plus a bit more so I wasn’t too stressed, and (2) I’m a huge sucker who agreed not to deal with the brother when the sister told me that he has anger issues and has no interest in being involved. Turns out the sister was simply using the rent money to buy alcohol and go out, and even when confronted about this she did not deny it. Incredible. Whatever. The point is, I believe that as a landlord it’s important to still be an empathetic and compassionate person, but there has to be a line somewhere. I let her dance all over that line since 2019. Now, the moment she gives me any sort of trouble regarding rent, she’s out.
Lesson learned: I’m generally and easy-going person who wants to see the best in people and trust their word, but as a landlord, I’ve got to grow some thicker skin… especially if I plan to manage several properties on my own.
FINANCIALS
When I first rented the property out, I was pocketing about $200 each month in profit after taxes, mortgage, insurance, and money set aside for maintenance and repairs. I kept the rent a bit lower than the rest of the market at $550/mo. Utilities were the tenant’s responsibilities. According to the bank at the time, the house was worth $28,000.00.
Today, little has changed except the fact that market rents have dramatically increased, and taxes have increased as well; I’ve managed to cut my insurance costs in half by switching to a business policy; and I’ve increased the amount I put aside for maintenance and repairs. Also, as of this post, the property’s value is now around $73,000.00.
Here’s a basic rundown of then versus now.
NOVEMBER 2018
Rent: $550
Mortgage: $122
Insurance: $43
Taxes: $57
Maintenance: $120
Profit: $208
NOVEMBER 2022
Rent: $620
Mortgage: $122
Insurance: $27
Taxes: $86
Maintenance: $150
Profit: $235
So, I’m still making $235/mo. in profit after all is said and done. Not enough to move mountains or anything, but hey, it’s something! It’s worth mentioning, however, that I’ve kept my rent far, far below market rent, which is now hovering somewhere around $800-$950 for my particular property. I’d hate to increase rent that much all at once though, plus I feel that is a bit high for the current state of the property, plus for most families in the area in general. Once the current tenant leaves, though, I do plan on updating the property and increasing the rent to perhaps $750.
Also, from $28k to $73k in equity after just four years? That’s a pretty wild increase, in my opinion.
Lesson learned: Although I’m mostly focused on buy-and-hold rentals for the monthly income, it’s important to also consider appreciation. Sure, the market has been absolutely bonkers this last year, and I can’t expect to double and triple my home equity via appreciation in such a short amount of time, but if I’m going to be holding onto these properties for 15+ years, then appreciation is definitely something to keep in mind.
WHAT’S NEXT?
Well, here I am, 28-years-old with my own house, a paid-off decade-old car, two dogs, a partner, and two rentals (albeit one is under remodel since I only acquired it in August). I’ve still got a lot to do if I plan to retire by 35, but I think it’s doable. I’ve got a new job netting me $90k/year, and my partner’s own job net’s them $84k/yr. We make about $113k/yr after taxes, and our household expenses (i.e. mortgage, utilities, phone, and internet) are considerably low… a bit less than $1,000 per month. Right now we’re working to aggressively pay down a massive pile of debt before splurging too much on ourselves, but I’ll keep my eye open for any additional rental opportunities that might make sense to pick up in the meantime. I’d also like to start focusing more on this blog now that I’ve got an income and situation that I can really work with.
Crazy to think when I started this blog 5 years ago, I was only making around $30k/yr working in a call center and living at home (by choice, but still). Now it almost feels like I’ve got the world at my fingertips. Sure, my partner and I have amassed a collective $67,400.00 in debt spread across credit cards, student loans, and mostly a HELOC that we used to remodel our house, but with our income — in addition to the fact that the equity in either our home or my first rental could cover the HELOC expenses if we ever sold it — I’m reassured that we’ll be fine.
I’m just eager to pay it off and start making bigger and better FIRE moves.
~ Alex
Neurotic Finance 