Cash flow for the holidays | Building the Empire

This week in “Building the Empire:” we get a big bump in our rental cash flow, right in time for the holidays!

It can be expensive to renovate property, and it’s not only the cost of materials and labor. A myriad of costs are involved with owning real estate in your portfolio.

Typical holding costs:

  • Mortgage payments
  • Utility costs
  • Property insurance
  • Property tax

Generally, real estate investors rely on rent collections to offset these costs and provide a profit. Without that inflow of rent every month, the holding costs can quickly add up.

Holding costs don’t care if you have tenants in place. So for the last 6-12 months that we’ve been renovating and turning over our two small apartment buildings in Indianapolis, these holding costs have been sucking up a lot of our available capital. Luckily, our portfolio has grown to a point where we’ve been offsetting these losses with the income from our other rentals.

However, we finally got both properties to a rentable state over the last month or so.

Read about this and see the before and afters photos in the last episode of Anno Darwinii.

Some good news

Our property management team has been hard at work over the last month marketing these units. We’ve been tinkering with the unit lease prices and adding in new appliances here and there. This past week, we finally got some great news that a number of the units are being leased out. Below, I’ve listed the units and the expected change this will have on our cash flow.

Indy Apt Building #1

This is an eight unit apartment building. I only retained one tenant from the purchase, who’s resolutely withstood the stress of constant renovation over the past 9-12 months. Hopefully she’s enjoying the relative peace and quiet (and upgraded facilities).

We still are considering options for the basement. There are two spaces that could be livable units, but the initial estimates are coming in extremely high. We might simply end up adding storage units to the basement and calling it a day.

New tenants additions:

  • Four units leased for $850/month each
  • Management fee: 8%
  • New positive monthly cash flow: $3,128
  • New positive annual cash flow: $37,536

There are three more finished units in the building that still need to be rented out.

Indy Apt Building #2

This is a seven unit apartment building. I’ve written before about the difficulties we had renting the units and the changes we planned, like adding new appliances. The good news is that these interventions worked!

  • Three refreshed units leased
  • $750 + $625 + $900 = $2,275 / month
  • Management fee: 8%
  • New positive annual cash flow: $27,300

One unit in this building is also being turned into a short term rental and should be coming online in January 2022.

Conclusion

Altogether, our annual cash flow should increase $64,836 in 2022 from these newly leased units. That’s not true net cash flow, as a lot of this money will be diverted to paying for the holding costs of real estate. But from our perspective, we’ve been paying for those holding costs out of pocket in 2021. So we should have a nice swing in our cash flow.

I can’t wait to redeploy this cash flow into new projects!

–TDD

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