Update on the Rental Empire: Anno Darwinii 0.5

It’s been three months since the last update on my rental property empire. We are now 6 months into Anno Darwinii (Year of Darwinian), which marks the birth of my rental empire.

There are a lot of new developments to share! Let’s start from the beginning.

Rental Property #1:  Birmingham

Recap

At last update, I reported that this 3 bedroom, 1 bath property lay sadly vacant for 3 months.  It took a lot of threats and ultimately a change of property management before I was able to get this rented out.  

I still don’t know why it was so hard to get a renter in, because as I survey the rental market there, my property was in great condition for the area, and was at a compelling price point ($810/month).

Current status

The property has been rented now since October, and my new property manager has been running the show smoothly and without issue.  I’ve gotten 3 rent checks that have been covering all costs with a small profit margin as well. It’s not as much cash flow as I had hoped to generate, but it’s better than a vacant house!  

Here is a more detailed analysis of my expected Real Return for property #1.  When we account for mortgage paydown and appreciation, I hope to have about a 9.7% Real Return for my first year of ownership.  The Strict Return, though, will likely be a nauseating -2.3%.

While I wouldn’t say this purchase was a grand slam, it did get my real estate adventure started. So I’d say it served its purpose!

Rental Property #2:  Little Rock

Recap

Last update, I also reported that I reserved a property with a different turnkey provider based out of Memphis, TN. They recently expanded operations to Little Rock.  I actually flew to Memphis last year to meet their team, and I was very impressed.  

• Purchase price:  $94,000
• Renovation target completion date:  November 2019
• Target rent:  $925/month

Delays

The renovation got delayed a couple months by permitting issues, but since this is a turnkey deal, I didn’t really care!  I had no money invested yet in the deal, so I was happy to let the turnkey company work through the renovation kinks.

This highlights an important difference between a turnkey investment, and going it on your own.  While this rental property will be retail price, with no do-it-yourself discount, there’s much less risk and time commitment in the acquisition and renovation phase.  

Current status

As of January 2020, the renovation is complete. I’ve had the property inspected, and they’re working on fixing the few minor issues that were identified by my inspector.

What’s more — it’s already been rented! They have renters with a signed lease ready to move in, and the agreed upon rent is the same as the projected rent: $925.

I look forward to the purchase finalizing this month. I’ll give another update on its performance in the next edition of Anno Darwinii, or perhaps I’ll do a formal Real Return calculation. The preliminary analysis shows a much better projected return than Property #1.

Rental Property #3:  Indianapolis

Finally, let’s talk about my current project, a duplex in Indianapolis.

One thing that I really like about Indy is that it’s a renter heavy market, and there are a lot of duplexes.  Duplexes can offer a higher return than single family homes, and have the advantage of one purchase yielding two units. They appeal to my love of efficiency, both monetarily and with regards to time.

• Purchase price: $157,000
• 2 bed / 1 bath on the left
• 2 bed / 1.5 bath on the right
• Target renovation completion date: February 2020

Current status

I’m taking an active role with this project, and am heading the renovation and property management teams myself.

The left side is fully renovated and will hopefully be rented soon. The right side renovation began last week, and is moving along smoothly.

There’s so much to discuss about this property that I’m going to follow up later with a specific post about the property so I can describe in more detail why I bought this specific duplex. I’ll go into the numbers behind the purchase and renovation, and will include before and after pictures as well.  

Conclusion

I’ve decided that rental real estate is the most tax efficient way to achieve the cash flow necessary for financial independence (especially for high earners). It’s currently one part of my two pronged approach to achieving financial independence (the other part being stocks).  My original plan actually didn’t even include real estate!

But if my rental empire keeps growing at the same rate, real estate will start to dominate my portfolio in the months and years to come.

— TDD

That’s it for this edition of Anno Darwinii. Please comment, share, and subscribe for more updates!

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