And that’s just what I kept track of once we had an offer submitted.
I’m going to delve into what I’ve experienced during the purchase, renovations, and management of our first rental property over the 2 years we’ve been involved in it. Keep in mind that we’re brand new to this business. There’s a lot of startup activity we’ve gone through to get to this point (and probably some more to come).
On The Hunt
Let’s start with some data that I don’t have. If you’ve read any other post on this site, you can probably guess that I like data. During our search process, we digitally screened North of 150 properties. I made 2 spreadsheets for this task. One mimics the Multiple listing service but adds a few more columns. With this first tool, I could see all inputs from the listing and get a rough estimate of cash flow. For properties that looked interesting, I would fill out a more detailed sheet.
Spreadsheet#2 calculated several measures of profitability (or loss) based on some more specific details. I filled out upwards of 40 of these detailed sheets.
Finally, we went to see about 5 places. We made offers on two. We were outbid on the first. And, the second took 10 months from the time we wrote our offer to the time we actually closed. I would guess we spent about 200 hours screening for our rental in 2014. Let’s amend my total at the start of this post to 800 hours.
In October of 2015, we found a short sale: a 2 bed, 2 bath condo that priced about 25% below market. We walked through the unit and saw lots of potential. No major problems, just an interior badly in need of updating. So, we put in an offer almost on the spot. We made a list of the major things we needed to do with 3 point estimates to complete each. And then we waited. We filed contact extensions. We waited some more. In summer, we went on vacation and then updated our financing pre-approval. We found out we were pregnant…and filed another contract extension. About 8 months from the time we put in our offer things started moving. Finally! All told, we spent about 20-25 hrs between the end of 2014 and August 2015 keeping the contract alive.
Now, there were lots more forms to fill out from the sellers’ bank. We coordinated the appraisal and the inspection. The bank finally set the closing date for September 30, and things went more smoothly. We made a more detailed punch list of our renovation activities and a schedule. That’s the time you see in September: about 63 hours of effort to get us through closing and actually into the unit on the 30th.
You bought it, you broke it. … Or something like that. I admit that at times it felt like we were barely keeping our heads above water. We were both working full-time and then trying to renovate our condo and get it on the market ASAP. We spent almost $15,000 taking our condo from ugly builder’s white and grimy to a chic penthouse apartment in one of the most desirable locations in the area. In addition to the cash and contractors’ efforts, it took us about 400 hours of our time spread out over 2 months. We contracted for the counter top installation, HVAC replacement, and appliance haul away/install. We did every other bit of paint, flooring, fixtures, cleaning, etc. by ourselves or with the help of one great friend. But, we kept our vision firmly in front of us and pressed onward.
You might think that cutting floor boards on a Saturday is beneath you. Or that you’ve progressed beyond replacing the fill valves in a toilet tank. If so, you’re right. Go work in your cubicle for another 30 years before you can retire.
For everyone else, I can tell you that there is no more liberating feeling than swinging a hammer to build your own system. To quote Sam at Financial Samurai, “don’t be too proud to be rich.”
Now that things are up and running (we’re entering our 10th month of having the unit rented), we are enjoying the result of all our efforts. I’ll follow-up with more detail in future posts. For now, our aggregate has been about 100 hours of total effort to handle rental operations. Despite the monthly ups and downs, we’ve brought in a gross income of over $17,000. Divide that by 800 hours, and we’re making $20/hr! That puts us squarely in the basic Human Resources and Gaming Supervisor categories. Woo hoo!
Before you scoff, remember this is income that:
- Comes in whether I’ve had a bad day at work or not. In fact, it comes in whether or not I show up to work at all.
- Will get better over time (both the hourly rate and the annual gross).
- Currently has a mortgage associated with it, taking a big chunk of the gross income. Someday it will be paid off, and then we’re that much closer to financial freedom. Better still, someone else is paying our mortgage for us. All of our cash outlays are complete! More on that in another post too!
- Allows us to learn about and claim a number of potential tax deductions/business expenses.
Now this is a seedling I am excited to nourish. Grow little money tree, grow!