It’s that time of the month again, another cash flow statement! This year is half way over, and I’m getting that much closer to declaring early FI. What I really need to focus on at this point is to keep on building up the cash reserves (for emergencies). As long as the rentals keep on performing, I will be allowed that luxury. How did I do this month? Read on, and you shall see!
The results are presented “as is” for each month. If something breaks and I need to spend money on repairs, those charges will show up as an expense for the corresponding property. If there are no issues, no expenses are reported. So, although I do set aside a portion of the net income for vacancy and maintenance reserves (which will inevitably happen), I don’t account for them in this report.
Here’s the report for June:
Rental Property #1: Bay Area
Rental Property #1 continues to be a model of consistency for my rentals. Nothing to report this month, as the tenants paid on time and there were no issues to deal with. The cash flow this month was optimal, and things are continuing to look good from an appreciation point of view. I have a lot of equity tied into this rental, which I may elect to tap into in the near future…
Total cash flow for the month was $447.67.
Rental Property #2: Bay Area
Similar to Rental Property #1, this property also continues to excel. Just like with Rental Property #1, there isn’t anything to report this month. The tenant has now finished their 1-year lease and is living month-to-month. Market rate for rent has continued to climb greatly, but I have no interest in raising rent at this time. I have an outstanding tenant, one that I would love to keep around for a very long time. The cash flow is sufficient for now, so why mess with a good thing? If it ain’t broke, don’t fix it!
Total cash flow for the month was $344.76.
Rental Property #3: Chicago
The first floor tenant (market rate) is my favorite tenant in Chicago, as she continues to pay on time without incident. No news to report here!
The second floor tenant (Section 8) has been more difficult, but even she managed to pitch in $200 this month. Her lease expires in August, and I am already working with the PM to try and get another tenant in place by then. This tenant still has an outstanding balance, and I have zero confidence in her ability to pay it off. Unfortunately for her, at some point she will have to, otherwise she will lose her Section 8 voucher.
The utility bill came due this month, and it registered at an all-time high of $143.77. The utility bill has been by far the most erratic and inconsistent bill that I’ve had to deal with in Chicago. I budget $100/month, and although it was very high this month, it isn’t billed monthly. I’ve been meaning to check in with my PM to discuss this matter in more detail, but right now it looks like the bill comes in every 2-3 months.
Total cash flow this month for Chicago came out to be $720.92.
Rental Property #4: Indianapolis
Rental Property #4 is now over the eviction hurdle, and the new tenant paid on time this month! Woohoo! However, my PM short-changed me $150 again this month (cleaning fees to make-ready for new tenant from last month)… There was a reorganization in the PM side of things (two new hires and the previous manager was let go), so I think there’s still a lot of confusion going on with the hand-over. I’ve e-mailed the new PM in charge, and she has assured me that this issue will be corrected next month.
And this is why landlording will never be fully passive, even with a PM in place. As everyone who owns property knows, even when you hire a PM, you MUST stay on top of things! Otherwise stuff like this will happen, unfortunately, more times than not. And when things slip under the cracks, you as the owner will be the only one who cares…
Total cash flow this month for Indianapolis came out to be $518.18.
Rental Property #5: Chicago
The first floor tenant is Section 8, and her portion is only $110. Section 8 covers $1,098, or the majority of the rent. It’s been three months now, and this tenant has stopped paying altogether!!
Although I’m not hurting from a cash flow perspective (the extremely generous Section 8 portion more than buffers for that), I really do not like the idea of renting out to a free loader. I feel like if this tenant cannot take even the most basic of adult responsibilities seriously, then she needs to get the boot.
I like rewarding quality tenants, but I want nothing to do with deadbeats!
I expressed my displeasure to the PM, but unfortunately, I am somewhat stuck in a bind… To go through an immediate eviction, it would cost me the following in fees (from my PM):
We do know ____ is still there due to her neighbor telling us so and that she was physically served with a 5-Day Notice. However, the fact that she has ignored us repeatedly via phone, e-mails and letters means that it is not likely she is going to pay what she owes us. The only thing we can do now at this juncture is report her to CHA and proceed with eviction,. If you keep her there, yes you will continue to receive CHA portion, but not her portion. Since her lease is not up until 02/28/15 I would keep her because you will still get CHA portion of rents. But ultimately it is your call, so let me know so I can consult with ____ whether or not to proceed with the eviction.
The costs are as follows:
- Service of 5 day notice (already incurred) = $65
- File and serve the Eviction Complaint = $357
- Attorney Fee = $500
I would also budget another $200 in case the Sheriff can’t get the Tenant
served with the summons and Complaint and we need to hire the process server.
Included in the additional $200 would also be the Sheriff fee to evict the Tenant
should the Tenant not move out voluntarily.
As far as the time to evict, it varies based on the Tenant’s actions in Court and
whether the Sheriff is able to serve the Court documents quickly, but generally it takes
about 2-4 Months to get the Tenant out involuntarily.
So, I would be out basically a full month’s rent if I were to start the eviction process immediately. This doesn’t even factor in the extra costs involved with making the unit rent-ready, and any lease up fees that would need to be paid to source a new tenant! The first floor tenant’s lease is good until February 2015…
The alternative is I keep her in place (reluctantly), collect the CHA portion, and simply live with the missed payments from the tenant each month. At $110/month, this would amount to $1,320/year in missed rent collection. With seven months to go from now until February 2015, that would only be $770… Unfortunately, it would cost me more to evict her!
As you can see, all of this defies logic and intuition… It’s no wonder why so many landlords become slumlords when renting out to Section 8… Next time around, I may very well just elect to go with a market rate tenant, instead. I am having much better success going down that route, so far… And who really knows how bad she is trashing up the unit right now (my only real concern)?
On the brighter side of things, the second floor tenants (market) paid on time and without incident.
In summary, most of my efforts (stress and frustration) with rental properties has been completely attributed to Section 8 tenants… even though a large portion of their rent is guaranteed! Go figure…
Although it may seem like I have a lot to gripe about, I really can’t complain too much right now because at the end of the day, the results still add up. I just have to be careful and make sure I am putting aside a large portion of the net income towards future reserves.
After all expenses, total cash flow came out to be $1,098.34.
Total cash flow for June came out to be $3,129.87. Anytime I’m able to clear $3,000/month, it’s a great month in my book. Sure, it isn’t always easy, but that’s the price you pay when you chase higher yields. Since my portfolio is comprised of a few high quality properties (and tenants), I do have the luxury of taking a bit more risk. If I can find a way to stabilize my situation in Chicago, the cash flow will become so much more passive. As I’m learning first hand, as a landlord, absolutely nothing is more important than having quality tenants… That alone, can make or break you… If you have outstanding tenants in place, you should do absolutely everything possible to make sure they don’t leave… ever!