Sunday, August 18, 2013

Real Estate Portfolio

Back in 2007 I wanted to buy a home. I had two choices that I could afford. One was a house. A liquor store was three buildings away from it on a street corner and it had bullet holes in its sign. The house did not have a garage but a large carport. I own an Acura Integra which is always on the Top 10 most stolen cars of America. I've had it attempted to be broken into twice so I pretty much would have to write off the car. The price for the house was a steal and keep in mind this was 2007. Everyone was flipping houses. It was the thing to do back then. The other choice I had was a townhouse. Kind of small but it was well maintained and a good area located within close driving range of three very large employers. I decided what I would be happy to come home to and passed on the dream of flipping it for 100% profit in 5 years. 2008 came along and I was pleased with my choice.

I met my girlfriend and then later on moved in with her. She has a Saint Bernard and my HOA would not allow dogs so there was no choice in the matter. It did leave us with 1 house too many. I did my research and decided to rent it out and become a landlord.

I got myself a property manager to handle everything and let me tell you, it was a no brainer. Do you like the idea of getting a phone call at 1 A.M. in the middle of winter about a broken furnace? How about a renter that is two months later then skips town, want to deal with that? Yeah me neither. 10% a month of the rent is more then fair to make all the problems go away.

First up is the net worth of the unit. For the estimated value I use a combination of the value I pay property taxes on,,,, and The mortgage is what I still owe on the unit and as you can see its underwater, by a lot.
I have a Real Estate Cash Account which is a checking account where I pay repairs out of, make extra payments on the mortgage, and receive my rental income into.
The Real Estate Savings account is the savings account tied to that checking account. I keep $2,000 in there for any repairs. I have recently replaced the A/C and Furnace on it so do not expect any big repairs for at least a decade. But you never can be sure so I want that cushion so as not to need to sell any dividend stocks.

Now for the income part.  I collect $950 in rent a month.
-$95 (10%) is taken out for the property manager.
-$150 is what I have to pay for the HOA. Now that may seem like a lot but its a gated community of townhouses. They handle the roofing, siding of the buildings, trash pickup, landscaping, and an onsite security force. As with the property management fees, I'm willing to pay people to make problems and worries go away.
-$53.73 is what I pay for Renter's Insurance.
-$95 (10%) I set aside for vacancy months and repair. Let me tell you, you HAVE to prepare for these. They WILL come up.
-$745 for mortgage.

That leaves me with a -$200 loss every month. Not the greatest investment by far but its underwater -$15,000. I'm certainly not going to sell it. For now I will bide my time and let someone else buy me a house.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.


  1. Looks like you are on the right track with your rental unit :) Sorry to hear aboot your negative equity. I think prices should eventually go back up due to inflation and population growth, if not anything else. Location matters too, as urban sprawl can make the recovery process slower, but it sounds like you know what you're doing :D

    If you have a mortgage payment of $745 per month then I bet at least $200 of that goes towards your principle? Since building equity is kind of like forced savings, I'd say your cash flow is pretty good eh :) Even if the $745 were all interest, it would still get lower over time as your mortgage balance lessons after each month (^_-)

    I only recently became a landlord myself so thanks for sharing your numbers. I'm always trying to learn how to run my finances better.

    1. Thanks for the comment Liquid...
      After 2008, I think I am in good company with negative equity on a house lol. For an investment property, given time it is like a forced savings account. That's a good way too look at it. However I would only view investment property that way because there is some cash flow coming into it. I would never view the equity in my home I live in that way because it doesnt.

  2. Having a manager run the properties is definitely the way to go. I used to be my own manager but once I began traveling for work it became impossible. My next purchase will be a townhouse or a condo for the fact that the outside should always be maintained professionally. Problem is my wife won't let me do that right now (until our current units are paid off).

    It surprised me that a lot of renters don't want to manage their own yards. I used to add 100$ a month to rent if they wanted me to keep their yards up and nearly all of them would rather pay extra...

  3. I have a Real Estate Cash Account which is a checking account where I pay repairs out of, make extra payments on the mortgage, and receive my rental income into.
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