Thursday, February 1, 2018

Real Estate Income Property - Case Study #2


If you ever wonder what it is like to own a rental property, read on! This post will tell you how we got a triplex, what the numbers look like and what sort of property management adventures we ran into over the past few years.

Rental Income Property

This beautiful century home is located near down town of Guelph, ON.

Like many other homes on this quiet old street, the house has a gorgeous flower garden around it. You can sit down on a wooden porch and listen to the church bells ringing on the hour in the distance not too far. I love the peace and tranquility.

Key features: 

  • Triplex: 
    • 1 bedroom in a side wing comes with a small back yard
    • 2 bedroom on the main floor comes with a nice back yard, washer/dryer/dishwasher, and lots of storage room in the basement
    • 2 bedroom on the second floor has an incredible feel to it, thanks to mezzanine like ceilings
  • 1 car attached garage
  • Corner lot

Purchase

This home is our very first investment. Stars aligned in a special way when we got it. You can read the full story at Our First Rental Income Property.
  • Asking price: $344,900
  • Purchase price: $340,000
  • Found by: Real Estate Broker on MLS
  • Zoning: Legal nonconforming triplex (sigh... I didn't know zoning could be an issue at the time)
  • Rent: $850 + $895 + $750 = $2,495/month
  • Expenses:
    • Utilities: ~$410/month
    • Taxes: ~ $280/month
    • Insurance: ~ $200 / month
    • Misc: ~$100 / month
  • Expected NOI: $1,505 / month
    • Financing: 80 LTV, 30 year amortization, 5-year term, variable 2.98% interest
    • Expected Cash Flow: ~ $400 / month

    Total Investment

    This property required a 82K investment.

    The biggest capital improvement so far was installing a new flat roof on the garage in 2017.

    This was an expected investment as problems with the original flat roof were brought up during pre-purchase inspection. We did not know at the time that flat roof installation can get pretty pricey.



    Investment Summary



    InvestmentAmount
    Downpayment$68,000
    Closing Costs$5,500
    Capital Improvements$8,389
    Total$81,889

    Cashflow and ROI 




    • Property has been cash positive from the get go
    • Cash flow averages $500 / month or 6K per year
    • Net profit is approx. $900 / month or 11.9K per year
    • Cash on cash return is 7.3% 
    • ROI is 58% over the four years and 14.5% annually on average

    Year 2014 Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
    Income
    Rents (@100%)18,335 31,750 34,200 35,200 119,485 29,871
    Vacancy1,300 300 1,600 400
    Total Gross Income18,335 31,750 32,900 34,900 117,885 29,471
    Expenses
    Taxes3,824 3,768 4,319 3,858 15,769 3,942
    Insurance1,217 2,148 1,961 1,926 7,252 1,813
    Repairs/Maintenance1,157 1,997 1,463 5,109 9,726 2,432
    Utilities1,946 2,201 5,616 5,496 15,259 3,815
    Admin/Advertising34 45 30 0 109 27
    Total Expenses8,178 10,159 13,389 16,389 48,115 12,029
    NOI10,157 21,591 19,511 18,511 69,770 17,443
    Mortgage - Interest Payment4,364 6,145 5,670 6,105 22,284 5,571
    Mortgage - Principal Paydown4,147 6,347 6,502 6,661 23,656 5,914
    Cash Flow1,647 9,099 7,339 5,745 23,830 5,957
    Net Profit (Loss)5,793 15,446 13,841 12,406 47,486 11,872
    Cash on Cash Return2.01%11.11%8.96%7.02%29.10%7.28%
    ROI7.07%18.86%16.90%15.15%57.99%14.50%

    Appreciation / Equity

    Based on MPAC assessments, the value of the property increased by 33K during the last four years. Once we include the equity gain in ROI calculations, return on investment becomes 25% per year:

    Total gain including appreciation: $33,000 + $47,486 = $80,468
    Total ROI including appreciation: 98% overall and 25% annually.



    History

    2017

    • December - Two great tenants renewed leases. Hurray!
    • Nov - Dec - Fixed stucco 
    • September - New garage roof and eaves repairs
    • August - New super-awesome tenants moved in. Rent up by $200 💪
    • June - Tenants moved out. They'd like a bigger place with parking.


    2016

    • December - Two awesome tenants renewed leases. Yay!
    • September - new washer 
    • July - New tenants! Rent is already at market, no change
    • June - One of the great tenants moved out. He is relocating to the West coast


    2015 

    • November - Fixed a garage light. Turned out wiring issue. Cost $700. I couldn't believe it!
    • October - Found new great tenant! Rent up by $200 💪
    • October - Old furnace suddenly died. New furnace installed as a rental
    • September - Another good tenant moved out because he found lower rent closer to university.
    • September - Found a new awesome tenant via referral. Rent up by $200 💪
    • August - Amazing tenant moved out - engagement 💕
    • February - Pipe broke! 💦


    2014 

    • October - New amazing tenant moved in. Rent up by $50 per month 💪
    • September - Tenant got engaged and moved out  💕
    • September - new dryer
    • June - First ever tenant request: clogged sink 💦 
    • Purchased in May - Our First Rental Income Property.