Was it Worth It to Buy Rental Property?

Was it worth it to buy rental property
Was it worth it to buy rental property

I am not sure if we are the only ones doing this, but in the Leybovich household we have monthly board meetings. My wife Patrisha is the president of the board. Our white lab by the name of Sladky is the secretary. While kids and I just raise our hands to ask questions, which Patrisha can answer and Sladky can then record for posterity with a bark of approval.

Well, a few days ago we were having a board meeting while taking an evening stroll – all five of us. And, I asked a question:

Was it worth it to buy rental property?

I was referring to all of the time and energy that I am having to spend on management of my most recent acquisition. You may know, I’ve written about this in some of my other articles, that in February of this year I bought a 10-unit apartment building. Though there is nothing wrong with the building itself, the tenant base that I inherited was some what problematic due to a very lacking qualification process of the previous owner.

In short, I knew that I’d have my hands full, and I do… I’ve turned over 4 units in 6 months, and I am not done for the year…I am definitively earning my stay.

So – what did Patrisha Say?

Patrisha, without blinking an eye blurted out a truism that I know so well, but in the heat of battle sometimes forget:

“We have to stretch in order to grow. What you are doing now will pay for our retirement – sooner rather than later….”

WOW, yes it will – thank you baby for reminding me of this! And in case you guys are wondering, here’s what I am doing:

Analyzer_1

At the time of acquisition, this was the financial statement of this building. By the way – you are looking at the screen-shot of the last frame of my CFFU Cash Flow Analyzer software which comes as part of the Cash Flow Freedom University.

I could write 40 pages about what you see in this screen, but what I want you to notice now is the Monthly C.F. (cash flow) of $1,035.16. This was indeed the scheduled Cash Flow at the time of acquisition.

In that I’ve been working hard, here’s how things look right now:

Analyzer_4

Notice that the Monthly C.F. is now up to $1,489.51, which is about an $450/month increase. And, this is with only 4 units turned over.

In another year year and a half, once I’ve had an opportunity to do what needs to be done with the remaining 6 units, this will be the financial statement:

Analyzer_3

Thus, I am working very hard to re-invent a good investment into a great investment. I bought a building which was putting $1,035 in my pocket every month, but through the work that I am doing now, the same building will be putting $1,700+ in my pocket every month (it’s likely be closer to $1,900 actually).

The work is worth it – wouldn’t you agree? My wife is right…we have to make ourselves uncomfortable in order to move forward.

What do you think guys? Leave me a comment – let me know 🙂

UPDATE: Want to know how this project has turned out? Click here…

Photo Credit: Alan Cleaver via Compfight cc

13 Comments

    • Ben Reply

      Nice to see you here Jill!

      Yeah – you would know bud…It does get hectic at times; you know?

  • Jimmy Reply

    Great post and a great reminder!

    • Ben Reply

      Thanks so much Jim!

      I get wrapped up in managing my assets that at time I forget to manage my perspective…Perspective is everything!

      In those moments I am grateful for my wife having clarity.

      Thanks so much for reading and commenting Jim!

  • Paul Bryer Reply

    I totally agree you have to stretch yourself. Whenever I feel “comfortable”, I know something is wrong and I’m in danger of stagnation. That path leads to boredom and other undesirable states

    If it is something you enjoy, it is definitely worth it. If it is not something you enjoy, you will be miserable. And sometimes you have to do what you have to do of course, like feed the kids.. :^)

    Cheers

    • Ben Reply

      LOL Paul. Feed the kids – I enjoy. Real Estate I respect and love for what it represents, which is better life for my kids than what I could ever buy with earned income…I love what RE can do for ordinary people with a desire to learn and unwillingness to loose.

      Thanks so much for reading and commenting Paul!

  • Curt Smith Reply

    Hey Ben, noticed you got 80% financing on this 10 unit. What type of institutions can you get that these days?

    Tnx Curt

    • Ben Reply

      Hey Curt,

      I am not sure what got lost in translation, but my financing package on the 10-unit was actually 95% LTV not 80. Furthermore, I only brought $5,3000 to the table with all said and done – 1.5%. Obviously, you can not hope to attain this type of financing institutionally. This is creative finance universe Curt 🙂

      Thanks so much for your comment indeed!

    • Ben Reply

      Thanks Michael indeed for dropping by. Specifically what looks interesting?

  • Will Reply

    Hey Ben. Can you explain the difference between Monthly Net Operating Income and Monthly Cash Flow? It seems that more than 50% of your NOI is disappearing. What is it going towards? Thanks

    • Ben Reply

      Hey Will,

      Net Operating Income (NOI) = Gross Income – Operating Costs (All costs EXCLUDING cost of money).
      Cash Flow (CF) = NOI – Cost of Money

      We use the NOI in order to be able to evaluate property irrelative of the financing package attached to it. Someone buying a building for all cash needs to have an apples to apples way of evaluating it as someone buying it with 100% leverage. Capitalized NOI is the way we do it. Makes sense?

      • Ben Reply

        I should add that obviously that 50% of the NOI is not disappearing but it is covering the cost of money (mortgage payments). Since this particular deal was financed basically 100%, cost of money is quite high here. Having said this, there is still plenty of cash flow obviously. Thoughts Will?

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