Deal Deep Dive on one of my rental properties

One of the things I find most valuable from a content perspective is for someone to actually show me the money. Give me the details and results.

Very few content creators do this very well. Maybe because it is boring or they really don’t want to show you the “real stuff”.

As an educator, I want to show you a deep dive on one of my deals and show you the numbers.

Location: Louisville, KY 40272
Single family home
House specs: Vinyl siding with brick; on a concrete slab.
3 Bedroom and 1 Bath, 900 sq ft., Central Air and Heat
Lot size: 9100 sq. ft.
Built in: 1958

Purchase Price: $45,000 purchased on 8/27/2013
Downpayment: $12,579
Invested $3,000 after closing to put central air in.

Revenue:
2013 (date purchased 8/27): $2,325
2014: $9,300
2015: $9,300
2016: $9,650
2017: $9,720
2018: $8,505
2019: $8,600
2020: $10,500
2021: $12,930
2022: $12,240
Total: $93,070

To keep it simple here I took an average of taxes and insurance that I have paid over the years.

Taxes each year have averaged: $731 per year
Insurance averaged: $650 per year

Expenses each year have also varied depending on turnover. But here is a list of what is included in expenses.

Management fee which is 10% of collected rents.
When there is turnover: carpet, paint, cleaning, utilities while unrented, etc.
Capital expenditures (Cap-EX) such as roof, siding, and any other major structure expenses.

During the time I have owned this property, the two biggest Cap-EX issues I have had is putting in central air conditioning and new siding.
Combined total of these two projects: $8,000 dollars.

On average the total expenses on this property has averaged about $3,000 dollars per year. This includes taxes, insurance and management fees (these three are the big ones) in addition to all other expenses throughout the year.

So lets take a look at this investment over the 9 + years I have owned it.

If we take the total revenue dollars generated over the last nine years ( I am using nine because the first 4 months of ownership in August of 2013, it is basically a wash) and divide it by the total dollar amount.

This equals: $93,070/9 (yrs) = $10,341. This number is an average over the last nine years, but as you can see that the last five years of the ten I have owned it, it has generated a lot more. And it is only going up.

Now subtract the $3,000 a year that I spent on expenses from the average revenue a year $10,341.

Equals: $10,341- $3,000 = $7,341

Now you might be asking about debt service. Which means how much is my monthly payment on this place. It was $320 a month which included taxes and insurance in the payment, because early on when I had a payment I escrowed that money. Which means it was part of my overall payment.

However, this house has been paid off since 2018.

But lets stay with the numbers we have been using.

So $7,341 (Which includes all expenses) But lets now include the house payment (debt service we call it)

Since taxes and insurance is already being included in this number $7,341, lets just get down to an exact amount that I paid towards principal and interest on the money I borrowed.

I dont remember the interest rate. It doesn’t matter, because we are looking at just numbers. Revenue minus expenses and the interest rate is part of the numbers.

Lesson here: Do the math. If the math makes sense. Don’t worry about interest rates.

The average taxes and insurance I stated above.
$731 + $650 = $1,381/12 months = $115 a month of my payment went to taxes and insurance.

So what was the payment towards principal and interest each month: $205 (see below)

$320 x 12 (months) = $3,840 (total paid a year) – $1,381 (taxes and insurance) = $2,459/ 12 months = $205 dollars of my monthly payment went towards principal pay down on the loan and interest on the loan.

I hope this makes sense. A little wonkish here.

So now subtract the total payment a year $2,549, from our $7,341.

This equals: $4,792 a year left after all expenses paid.

How much extra cash did that give me a month. $4,792/12(months) = $400 bucks give or take.

I am going you an overall analysis when I had a payment on the place. I don’t now. So now I just look at the $12,240 it generated in 2022 – $3,000 in expenses and the $9,240 is all cash flow.

Look, I used averages in this analysis and you are looking at just the raw numbers. The hidden numbers that you don’t see such as debt pay-down when I had a loan, you can obviously see the appreciation in the value, but the biggest one you don’t see is the tax implications it had for me personally each year. These are huge.

So how much did it cost me to own this house now that you see all of the numbers? ZERO.
Why? Because once I got in to the deal the deal paid for itself.

How much am I into this place for? $45,000

How much is it worth? $131,900

How much will I make if I sell it: $86,900

What was my cash on cash return. See here for cash on cash return definition.

$4,792 (average yearly cash flow) / $12,579 = 38% cash on cash return. By the way, this is at its lowest point, using averages it was still producing a 38% cash on cash return. This is crushing it.

The question you have to ask yourself is would you invest $12,000 dollars today? To receive $86,900 ten years from now on a sell of the property?

Would you invest $12,579 today to receive $4,792 back 365 days from now? Which would be roughly 38% of your downpayment back?

Look, you are currently saying right now. “Well, home prices are much more expensive today, or where I live this would never work”.

That is the wrong thinking my friend. The numbers are just bigger based on the deal.

I put $12,579 down on a $45,000 piece of property. Which is 28% down. Im not sure why I put the extra eight percent down, because all you need is 20% down.

But you just have to do the math on the deal.

How much does the deal cost?
How much do you need to put down?
How much revenue will it generate a year?
Estimate your expenses?
Plan for the worst?
Determine what your goal is with this deal? Buy and hold forever, or hold five to ten years?

Then do the deal.

I hope you found this valuable.

Please reach out to me if you have questions or thoughts?

Also, I didn’t even calculate into the equation of the tax benefits this property has provided me over the last ten years. Which is a whole other post.

To your success and your future.