June 2014 Cash Flow Statement

by FI Fighter on July 14, 2014

in Cash Flow

Leverage

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:

June_2014_Cash_Flow

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

Total $922

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.

Summary

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!

Fight on!

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{ 25 comments… read them below or add one }

1 No More WafflesNo Gravatar July 14, 2014 at 10:35 am

FI Fighter,

This is the first time I came across one of your cash flow statements (newbie here!)… Really impressive and very encouraging for people looking to jump into the landlording business!

I’m definitely going to read up on your approach and best practices, thanks for sharing.

Cheers,
NMW

Reply

2 FI FighterNo Gravatar July 15, 2014 at 9:43 pm

NMW,

Thanks! I hope the cash flow statements prove useful to you and anyone else considering landlording. It’s through these reports that I share my own experience and learning.

Cheers!

Reply

3 CptMrPantsNo Gravatar July 14, 2014 at 1:04 pm

Try cash for keys!
People love money.

Reply

4 FI FighterNo Gravatar July 15, 2014 at 9:44 pm

CptMrPants,

That’s a great idea! With these tenants, I have a strong feeling they will decline, unfortunately. Some just really know how to work the system…

Might be worth a shot though!

Take care!

Reply

5 Dave @ The New York BudgetNo Gravatar July 14, 2014 at 1:49 pm

I also like the idea of cash for keys!

It’s interesting to see your issues with Section 8 tenants. I could be wrong, but I think I heard recently that in Chicago, you are no longer allowed to discriminate based on Section 8 status. I think it may be checking in with your PM there on that.

Finally, it’s funny, I definitely felt the effects of the shake up in Indy management recently as well. I feel pretty good about the new hires though. So far, they have been responsive, so hopefully everything will smooth out going forward.

Reply

6 FI FighterNo Gravatar July 20, 2014 at 10:08 pm

Dave,

Yeah, I will need to check into that with my PM to see what I can do moving forward.

I hear you on the Indy situation… It took some time to straighten some of the issues out, and like you, I’m hopeful this move will improve things for the future.

Fingers crossed!

Cheers!

Reply

7 Even StevenNo Gravatar July 14, 2014 at 2:12 pm

Is there anyway to avoid Section 8 all together in your next renter?

Reply

8 FI FighterNo Gravatar July 20, 2014 at 10:08 pm

Even Steven,

I will discuss that with the PM… I would like to source out to a market, if possible.

Take care!

Reply

9 LeighNo Gravatar July 14, 2014 at 6:03 pm

I love your monthly updates :) I remember reading on a blog that no longer exists about troubles with Section 8 tenants. It didn’t sound very worthwhile to me with how much trouble she had. 29 years old and over $3,000/month of non-wage income. My goal at this point is to hopefully have enough money to quit my job on my 30th birthday. I am really happy though with how frustrating work has been lately that I have enough financial freedom to take some unpaid time off and that I could probably quit without enough money to live off of for the rest of my life and find something else to do at some point that would make some money.

I say “hopefully have” because there are still so many uncertainties about the next four years. How long will I stay in my condo? Will I sell it and rent somewhere else? Or buy another place with my boyfriend? Regardless of what things look like, I should have somewhere around $1 million in net worth by my 30th birthday :D

Reply

10 FI FighterNo Gravatar July 20, 2014 at 10:09 pm

Leigh,

Thanks! Glad you find the monthly updates useful.

You are well on your way, and if you keep things up, you’ll be more than able to walk away at 30… $1MM by the age of 30??? That’s unheard of for 99% of people out there.

You can do it!

All the best!

Reply

11 Henry @ Living At HomeNo Gravatar July 14, 2014 at 8:17 pm

Very nice! Those cash flow will only increase once the mortgage declines overtime. If you don’t mind me asking, what is your average cash-on-cash return for the rental? And what percentage do you put down on your down payment? The mortgage payments is very good for the amount of rent. Keep up the great work!

Cheers,
Henry

Reply

12 FI FighterNo Gravatar July 20, 2014 at 10:10 pm

Henry,

Thanks! That’s my thinking as well… the mortgages are locked in 30 year fixed, and hopefully rents will scale and exceed inflation which will help bump up the cash flow over the years.

Take care!

Reply

13 No Nonsense LandlordNo Gravatar July 14, 2014 at 8:54 pm

You are finding out about why it takes a very experienced, hands on landlord, to handle Section 8 tenants. But experienced landlords avoid Section 8 like the plague. The entitlement mentality is over the top with Section 8 tenants.

Who advised you to take these tenants, as some Section 8 tenants are OK. They still have credit scores and can be high. The PM made money by getting them in.

You will also find that Section 8 tenants trash units quite a bit. Plan on painting, replacing carpet, maybe replacing a few doors.

Get rid of Section 8 and screen tenants better. I can always help if you need/want it.

As someone who collects 24 of 25 rents by the third of most months, and is 100% collected for July by the 11th (I had one late renter), I know the attributes of a paying tenant.

You will start to see how a single bad tenant monopolizes your time. They start to consume you, as you know they are taking advantage of you.

And if you think your tenant will leave at the end of the lease, good luck. They will not leave, and you will no longer have the subsidy. The eviction will take a couple (or more) months in CHI, and you will not only have attorney costs, but no rent at all coming in. You better hope the tenant does not get more child support or welfare money, her portion will go up and you will be out more.

Start the eviction ASAP. She may be able to get emergency assistance to get caught up. That’s the only way you are getting any rent from this tenant.

Reply

14 MartinNo Gravatar July 14, 2014 at 10:18 pm

Wow, you just expressed why I would never become a landlord. I do not want to deal with people who are irresponsible, always whining, stop paying… give me a break.

I would do everything but being a landlord. It’s not for me. I would trade options, stocks, futures, binary options, forex, or even go gamble to Vegas rather than being a landlord. So, I kinda admire FI and you (if you are a landlord) that you are willing to do it and have your business plan based on it.

Reply

15 No Nonsense LandlordNo Gravatar July 15, 2014 at 4:40 am

I am definitely a landlord…

You can read my bio if you care to. It’s really not that bad, if you get good tenants. My properties are closer to FI’s Property 1 and 2.

Reply

16 MartinNo Gravatar July 15, 2014 at 6:46 am

I managed a property for a friend of mine a couple of years ago and that was the point which made me not wanting to be a landlord at all.

Well, I like FI’s income and a great potential for appreciation. If there were no tenants involved, I would do it too.

Maybe business properties???

Reply

17 FI FighterNo Gravatar July 20, 2014 at 10:11 pm

Eric,

Thanks for your feedback. Your blog is a great resource on how to screen for quality tenants… These Section 8 tenants were lined up when I closed each property…

Moving forward, I would like to locate some higher quality market rate tenants. Hoping for the best…

Cheers!

Reply

18 Mrs. FrugalwoodsNo Gravatar July 15, 2014 at 7:00 am

Thanks for this rundown! As a future landlord, it’s incredibly helpful for me to read the detail behind each of your properties. You’ve given me more to think about. Thank you for writing this up and sharing it!

Reply

19 FI FighterNo Gravatar July 20, 2014 at 10:30 pm

Mrs. Frugalwoods,

Thanks! Glad you are finding the monthly reports helpful!

Yes, there’s definitely a lot of things to think about… Landlording, even with a PM in place will never be fully passive.

Best wishes!

Reply

20 A Frugal Family's JourneyNo Gravatar July 15, 2014 at 9:18 pm

Nice month! Bet you love seeing that all 5 rentals are positive cash flowing for you. Currently, we are not invested in rentals but would definitely like to own a rental or two one day as supplemental income to our retirement. Never hurts to diversify, right? :)

Wishing you continued success in your journey! AFFJ

Reply

21 FI FighterNo Gravatar July 20, 2014 at 10:31 pm

AFFJ,

Thanks! Yes, definitely love seeing 5 rentals cash flow positive and clearing $3000/month.

I know vacancy/maintenance are inevitable, so it’s also especially important to set aside some of the income towards future reserves.

Diversification is always a wonderful strategy… ultimately, I would like to own dividend stocks, index funds, real estate, cash, etc.

Best wishes!

Reply

22 The Wallet DoctorNo Gravatar July 16, 2014 at 2:06 pm

It looks like you have done pretty well overall. What do you think in general about renting to section 8 tenants? Is it working for you in general?

Reply

23 FI FighterNo Gravatar July 20, 2014 at 10:32 pm

Wallet Doctor,

There are pros and cons to renting to Section 8. The guaranteed subsidy is a good thing, but chasing after rent from tenants has been challenging, for the most part.

Right now, I’m leaning towards market rate tenants, since the performance has been better, so far.

All the best!

Reply

24 JasonNo Gravatar July 22, 2014 at 11:04 am

Not all Sec8 tenants are bad, but you have to screen heavily. I’ve got 2 and they’ve been model tenants. But, I’ve found that they do require more communication and care.

That being said, to have a better landlording experience, it’s worth it to spend more on a more upscale area. My latest rental, people were really interested because the area was very good and we got very professional people. It’s been a very good experience, rent comes in like clockwork and hopefully I’ll get 2 more before the end of the year.

Reply

25 CraigmNo Gravatar August 6, 2014 at 5:10 pm

What did your down payments look like for these properties? If you don’t plan on living in the property the down payment required is higher, correct?

Reply

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