I usually avoid posting about actual numbers in my posts from my properties, but thought I'd buck the trend this time to show any prospective RE investors how realistic owning a property can be. I have figures from House #1 in various folders in the file box specifically for it (BTW, it took be an entire weekend over the holidays to get everything filed correctly for both houses - something I kept putting off). This past weekend, I decided to gather every piece of paper that was a debt or an income for the house, along with the date, and put it in a spreadsheet. I actually kept better records the first year I owned the property - I had everything in a spreadsheet, along with a full description of the item. I just needed to add last year's items and this year's. Before, I had some things for the CPA in her folders, some things for tenents in their folders, etc.
Well, the bottom line is I am still in the red on this house. I knew I was before I had even started this project, but I wanted to see just exactly how much in the red I was. It turns out my estimation of $10,000 wasn't too far off. After everything - and I do mean EVERYTHING - was accounted for, I am in the hole on House #1 a grand total of: $10,362.
Now, before I get a lot of flame mail from other investors telling me what a piss-poor investor I am, I wanted to add two things ... First, I have not included any tax write-offs associated with House #1 in this bottom-line figure. Without pulling my 1040 (and associated schedules) from last year's filing and getting my stuff to the CPA and having her get my stuff for this year's filing, I don't have a clue as to what the numbers will be. I am guessing that I could probably deduct another $4,000-$7,000 from that $10,362 figure, but that's just a top-of-my-head guess. Second, as much as it pains me, I plan to sell the property this summer. I made an offer to my tenant already, but something tells me he won't buy it (Hmmmm - I wonder why?). If he does (for the price I quoted him), I'd make about $34,000 at the closing table. Other deductions and additions would put the final net profit figure at about $23-25k for House #2. BUT, the price I quoted him was really a bargain for the house this coming summer (especially with news of how hot the central Texas market is getting). I figure I could realistically add another $3-8k on top of that quoted figure, putting my net profit around $30k. Again, this doesn;t figure tax deductions (or even capital gains hits from selling it).
The ROI is a little harder to pinpoint as my cash out-of-pocket has really yo-yo'd month-to-month for the time I owned it. Costs before getting a tenant in the property was about $8,000, but it has risen as high as $12,000 last year, so I'm not really sure what figures to use and the time period to calculate the ROI.
As far as House #2 goes, it's slowly getting to be a pain. If I sold it TODAY, I'd still make about $10k after everything is counted (except income tax deductions, etc). But, I'm figuring a Feb or even March close now, which would dent my profit by a couple $1,000. Still, my goals this year are to buy/sell several more homes and only make about $8-10k profit at a minimum, so I'm not panicking. This - along with my House #1 sell - should pay off some debt plus give me cash reserves to buy other properties that will cash flow nicely.
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9 comments:
When I first stumbled on your blog I thought you were another "I read a guru scammer's book blubbering real estate investor wannabe" and I would add you to my reading for entertainment list.....but you turned out to be just the opposite. You seem like an intelligent, hard working, family man who wants to build financial freedom, and do it responsibly. I respect that.
A couple on that list which come to mind are Seattle Slew and the Tulsa Trumpette. Maybe they can team up with Casey and do some "sweet" deals....ROFL
Anyway, back on topic. I can't think of a single investor who hasn't lost money at some point and time....I've certainly lost a few battles.
The important thing to remember is:
a) Cut your losses before they get out of hand
b)You NEVER go broke taking a small profit.
Way too many people won't fess up to their situation and by the time they do, it's too late.
My "advice" is to SELL and GET CASH. Stop listening to the newspapers and hear what the market is telling you.....are houses selling quickly? Are they selling at list price? Who is buying? What kind of financing is involved? Why are so many houses in your market "for rent" when they should be "for sale"?
Fundamentals will require the market to "pay the bill". The only question now is who's going to pay it?
Be a cash vulture.....you get fat picking the bones...LOL
Stanely - Thanks (I think). While I'm at $10k in the red on this house, over time I would slowly transgress into the black (while, also, paying down my debt service, thereby, increasing my equity position). At this time, unfortunately, the cash-out is more in-line with my short-term goals. Although, that could change in the next 4-5 months.
Steve,
The "slap" was to all the mindless idiots jumping into RE. I've seen it, over the years, with precious metals, gemstones, hitech stocks, and now real estate. The game changes but the mentality endures. Just don't get caught up in the hype and lose track of where the market truly is and it's direction.
The problem with slowly increasing your equity position is it takes SOOOOO long to make a dent in the principle. Should the market take a downturn, or stay flat; where's the profit?....and you are at risk the entire time. Should Murphy, of Murphy's Law, knock on your door, it would take years to recover. One time I bought a building, figuring the HVAC had 3-5 years use, only to wake up one day five months later and spend $20k replacing it. OUCH!
Oh well, whatever works for you! To me, cash is king, always has been, and always will be. Building a cash position opens a lot of possiblities; especially when negotiating. If you come across a motivated seller, who's going to have the stronger hand....someone who has to get "creative" or a guy who can write a check? You can't get there overnight but when you do....YOU control the game.
Check out John Reed's site for REI. He's the only guy I've seen that actually makes sense and doesn't get into "guru mode".
Regards
BTW, this login to post sucks...error message every time. Thought you should know.
Stanely - I agree 100%. It's easy to get caught in the hype. If this were anywhere but Texas, I'd probably be seeing $200/mo+ positive CF already with this property. Unfortunately, property taxe rates in this state are assinine to the point you're debt service better only cover 60%LTV or you'll be red. To give you an example, I bought House #2 at 77% FMV at the time and it's now down to 69-70% FMV and I'm still in the red. I never count on appreciation to bail me out, though, but it's nice to hear this region is starting to finally appreciate after years of stagnation.
BTW, I tend to like Reed's overall philosophy on RE investing. I think he comes down too hard on some gurus, though (like Kiyosaki), but I understand his position.
Also, as far as the logging in ... I started to get a couple of "over-zealous" people on here, which I didn't feel like policing. Sorry you have to log in now. I like constructive criticism, but not when it's full of expletives, if you know what I mean.
Steve,
I don't mind the log in....it's every time I try to log in, I have to do it three or four times before it "takes"...dunno.
Texas Property Taxes....don't get me started! I'm looking to buy my next, and hopefully last house in TX and the taxes are a BIG part of the equation. In fact, I considered Austin/San Antonio before crossing them off my list. TX is still in consideration but other states offer as much or more for less money. The problem I have is I like TX. Hopefully, my business brain will keep me from making an emotional decision when it comes time to buy.
PUHLEEZ....don't tell me you think well of Kamisaki! C'mon, the guy packages one pound of fluff in a ten pound box. As far as practical, put it to use, and make a difference in your life "guru", read a couple of Zig Ziglar's books. He's walked the walk and talks the talk....with integrity. Don't get me wrong, Zig is just as much a self promoter. I get nothing from the plug but, in my case, made hundreds of thousands of dollars from a $5 copy of his book.
Regards
PUHLEEZ....don't tell me you think well of Kamisaki! C'mon, the guy packages one pound of fluff in a ten pound box.
While he may be another guru peddling his ware, I have to say his book "Retire Young, Retire Rich" was the instrument that turned on the proverbial light bulb in my head. Reed chastizes Kiyosaki about who his Rich Dad is (or if there ever was one), but misses the message in spite of the messenger. There are many places in the book I read that I still go back and read again - things that are glossed over the 1-3 times I read it, but make a lot more sense the 4th time. Lots of fluff - true, but also some good material, if you actually listen.
As far as practical, put it to use, and make a difference in your life "guru", read a couple of Zig Ziglar's books. He's walked the walk and talks the talk....with integrity. Don't get me wrong, Zig is just as much a self promoter. I get nothing from the plug but, in my case, made hundreds of thousands of dollars from a $5 copy of his book.
Yes, I've seen his name mentioned by many people (John $Cash$ Locke, for one) as having good material. I haven't read any of his stuff, yet, though, so I can't comment.
I've also read that Nightengale puts out a good audio. It's from the 50's/60's, but it's message is still true today. I also like reading stuff by Loftis. He adds some comical quips at times to lighten the mood, but is usually straight to the point.
Steve,
Im going to echo what Stanley says(good posts Stan)
Cut loose of the predetors you have, how many more of these can you afford to invest in?
Have you read some of your blog bretheren posts? You got Shauno Mac from Arizona buying a property from The Tulsa Trumpette & not even factoring vacancies/maintenance or eviction costs because the beautiful Trumpette told him the place rents real fast & all the work they done was top notch!?!? She must be offering free evictions & cleanouts in the management price. Oh well, Ill digress..
Starsky - Thanks for the criticism (and I'm not being sarcastisc - I really do mean it). I agree, too. That's one of the reasons I'm unloading both of these properties. While I'm in the hole to the tune of about $18k on both (roughly), they should net me about $30k in NET profit once sold (and that's a conservative estimate).
I'll use the bulk of that money to pay down some other personal debt, and use the remaining to buy another property. Depending on the property I buy, I'll either keept it or sell it and use the profit to invest in another property, and so on.
At the same time, I'm going to ramp up my marketing to target possible pre-pre-foreclosure deals, so I can alleviate a lot of these closing costs.
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