We were very deliberate when planning our rental property business. The very first step was to actually run the numbers. It’s my belief you should never invest in a business without running realistic projections – and then also running worst-case-scenario projections. I created a spreadsheet which was probably missing a few expenses but had all of the ongoing (projected) expenses I could think of and revenues broken out quarterly, outside of the initial cost of the property and any renovation or remodel. I have a different sheet for each outcome – 2 bedroom, 3 bedroom, and the best case scenario – 4 bedroom. Of course there will also be months when incidentally no one lives there. Like the whole first year if we are renovating. Boo.
Our 3 bedroom rental scenario
The expenses list includes:
- Carpet cleaning/replacing
- Touch up paint
- Garbage services
- Inspection fee to renew license
- Per sleeping room license fee
- Small repairs (appliances, yard maintenance, etc.)
- Property insurance
Balancing this out over the projected revenues, I estimate an eventual profit, but only if the property is paid in cash and remodeling is paid in cash, therefore not figured in as expenses. Even then, profits are small (do not come anywhere near replacing even one of our individual incomes). There are years and years of financial losses if you factor in a business loan. That being said, this budget is built for a single-family property, and with a larger property the cash flow would be quite different. With full-time jobs, we did not imagine ourselves running a large rental business and assumed one small property would be enough of a challenge! If we turn a small profit, we will feel like we successfully diversified our funds, with our goal being to simply NOT lose our asses assets.
Assets being the cash we have worked hard to save for years and years. Both of us have a constant headache and heartache over actually spending our hard-earned savings. It feels good to have that money sitting there in a savings account and knowing it is right there if we need it. #slushfund However, it is also doing nothing for us sitting in a savings account with inflation slowly eating up the interest. We know buying a rental property is a risk – a carefully calculated one – but still a risk. We are going to work a lot harder (for hopefully bigger returns) than we are with money sitting in a savings account. Plus, we hope by diy-ing the remodel and improvements we can squeeze the most return from each and every dollar we spend. Free bin on Craigslist, anyone? #gross #haha #spookytoo Keep in mind, projected budget numbers will vary with cost of living in your area so plan your budget accordingly, if you are following in our [insane] footsteps.
More exciting than the projected expenses are the projected profits. The more research I do into business taxation, I realize one of the biggest benefits the single biggest benefit to owning an LLC could be tax benefits. I need to dedicate a lot more time to researching business accounting and taxation. I understand we could just hire someone to manage our accounting but I enjoy learning, believe in life-long learning, and feel empowered the more I learn. How does the saying go – knowing just enough to be dangerous? That might be me.
We are certainly not expecting to get rich – we really just hope to turn a small profit and try a different investment outside of the stock market. It a decision we made together, and debated for years, so that we would not someday look back with regret. So away we go…#skerd
I talked to another landlord who started out in mobile homes…he said he didn’t recommend that due to shoddy construction, and he also recommended against buying a home built in the 70s or 80s as they were experimenting with new building materials. Luckily our home was built in 1912 so it’s built like a rock. I’ve heard you should never invest in something you know little about…but I’d argue a little research goes a long way. It’s great to ask around…knowledge is power!
George in his tax glasses, trying to eat your face. #totesadorbs