It’s time once again to do our annual rental property cash flow analysis, aka calculate our Net Operating Income (NOI). To see previous years, see the link at the bottom.
If you’re like me and you have a rental property it’s wise to do an annual analysis to see how well your property is performing. I perform this quick exercise once a year and it helps me make decisions about the future of my rental property.
Should I get more properties? Should I sell this one or refinance the mortgage or pay off the mortgage? These questions are easier to answer when you understand how successful your property is from a cash flow perspective.
As you’ll see below, I don’t overcomplicate things. I simply gather up the rents collected and subtract any expenses that I’ve incurred that I can attribute to the property. The result is my annual cash flow.
Since I do all of this out of one checking account at Chase, I can quickly log in and download last year’s data into a spreadsheet and sort it all out.
Expenses I have on this property are what you’d expect: mortgage, HOA, taxes, insurance, and repairs. This particular property is a townhome and it was our first home – we converted it to a rental property back in 2012.
If you have multiple properties, it might be helpful to use a more sophisticated expense tracking tool. I recommend the tools from our long-time partner Cozy.
And if you are analyzing a rental property for purchase, you will have to make some estimations on these numbers. For instance, you might want to reduce your expected rent collected by a vacancy rate of 10%.
Isn’t that the most beautiful thing you’ve ever seen? Ha! I kid. But that’s a nice, clean rental revenue table. Our best year of rents collected yet. We raised the rent slightly last year and it’s nice to see a full year of collections at the new rate. We’re blessed with an excellent tenant who pays this on time by check each month.
And, unlike last year we had no interruption due to major incidents forcing a loss of rent. Everyone’s happy.
Let’s dig into the expenses. After all, no matter how much rent you collect, your rental property is only as good as its actual cash flow (after expenses).
In 2019 we still had a mortgage on this property so you’ll be able to see what we paid in principal and interest below. HOA dues are relatively high because it’s a townhome and the dues cover the outside maintenance and the roof.
I was disappointed our HOA decided to raise the fee, but that’s one of the downsides of owning a townhome rental property.
However, beyond the HOA increase, our expenses were great! Insurance went down a bit, property taxes dropped, and we didn’t have a single repair! I told you our tenant was awesome.
And there it is. As a result of record rents collected, and one of our lowest years for expenses on record, we’ve hit our highest recorded cash flow in the history of the property! $6,000 in cash flow! Boom!
So what’s ahead for us and this property? So far we haven’t had any ill-effects from the COVID-19 crisis. I’ve checked with the tenant and they are doing fine, able to make their rent payment.
1. Renewing the lease. Our lease with the current tenant runs though August of 2020. Therefore, we will have to draw up a new lease renewal agreement. I will likely add an additional $25 (the minimum increase) to the rent.
2. Paying off the mortgage. We actually already did this as of February 2020. The mortgage has been paid off and we’ve stopped the automatic payment. This will have a massive effect on our 2020 cash flow.
That’s about it. I’ll continue to invest some additional cash into PeerStreet, the crowdfunding platform, which you can read more about in my full review.
Do you have a rental property? If so, how did yours do this year? If not, have you ever considered it? Do my results give you confidence or pause?