Archive | April, 2013

Investment Property Balance Sheet – 2013 Edition

15 Apr

Now that we’ve closed on our 2nd duplex and found tenants, I wanted to share an updated balance sheet looking at the both properties combined. The original balance sheet was created after we purchased our first property in 2013.

Duplex #1
Total cost: $181,350
Down Payment: $45,350 (25%)
Mortgage: originally $136,000, currently $132,930

Duplex #2
Total cost: $144,000
Down Payment: $36,000 (25%)
Mortgage: $108,000

Revenue Duplex #1 Duplex #2 Monthly Total
Unit A $995 $850
Unit B $910 $850
Total Income $1,905 $1,700 $3,605
Expenses
Principle & Interest $699 $531 $1,231
Taxes $351 $304 $655
Insurance $62 $68 $130
Repairs (7%) $133 $119 $252
Vacancy Savings $38 $85 $123
HOA $50 $42 $92
Income Tax Savings $152 $159 $311
Total Expenses $1,334 $1,149 $2,483
Cash Flow $419 $392 $811

A few significant changes vs. the 2010 version:

  • Rent Income – our first property was originally earning $875/unit, and luckily rents have been strong in that area. Combined rental income is now $155 higher per month than in 2010.
  • Vacancy Rate – now that we’ve experienced vacancies for both properties and have a better sense of the timing required to find new tenants, I’m using a vacancy rate assumption of 2% and 5%. 
  • Repairs – rose from 5% to 7% based on past experience. I definitely think I tend to err on the side of higher quality choices with my repair & improvement decisions compared to the average investor.
  • Income Tax Savings – this category was decreased; last year was our first full year with an investment property, so we didn’t know what to expect. After all was said and done, we owed ~$1600 (for one property), which was significantly less than the ~$4k I was setting aside.

On those days when managing our real estate investments is inconvenient or difficult, keeping in mind that I’m effectively earning $811 after taxes per month for my trouble helps keep things in perspective. And that is admittedly an over-simplistic way to look at it, since there are other benefits like appreciation, equity building, etc.

I’ve got some ideas on what I’d like to do with that extra $811 moving forward. Initially I want to beef up the investment property emergency fund to $5k per property, so $10k total. Then I plan to start pre-paying the debt on one of these mortgages in the interest of risk-reduction.

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