In November of 2016 Kendra and I purchased a 4-family investment property in south city St. Louis ~3 miles from our primary residence. After concluding our first calendar year of owning the property, I thought I'd share our results for those who were curious and/or thinking of possibly pursuing a similar buy and hold real estate investment.
Purchase price: $179,900
Our loan is a 30-year fixed rate residential mortgage at 4.25%
25% Downpayment: $44,975
Mortgage Payment (Principal & Interest): $663.75
$26,435 scheduled gross rents (4 units)
$600 garage rent
$26,045 gross operating income
Property Management (10% of gross rents): $(2543)
Leasing fee for new tenant placement: $(550)
Water & Trash: $(1232)
Lawn care/mowing: $(350)
Gas & Electric during vacancy: $(228)
City occupancy inspection aka government extortion fees: $(183)
Maintenance & Repairs: $(3594)
Property Taxes: $(2009)
$(13,069) gross operating expense
Net Operating Income: $12,976
Mortgage P&I: $(7965)
Cash Flow Before Taxes: $5,011
Cash-on-cash return: 11%
Equity Accrued: $2275
Total Return: $7286
Total ROI: 16%
Our goals were to cash flow $100 per month per door, have a cash-on-cash ROI of 12%, and achieve a total return of 20%. We hit our cash flow number almost exactly at $104 per door while our ROI and total return came in a little under our projections. However, we elected to spend about $1500 at the end of December on a handful of maintenance & repair items which brought down our NOI for the year. Excluding that line item, our cash-on-cash return would have been ~14.5% and our total return would be close to 20%.
Within the next 5 years this property will need a new roof and likely at least one new hvac unit to replace an existing boiler. We plan to pay for these items out of the property's cash flow, so although we hope that this year's numbers are a good baseline for future years until the mortgage is paid off, we know that those big ticket expenses will likely weigh on our returns at some point over the next few years.
Regardless of how you do the accounting, we were ecstatic with the first year's performance of our investment! Having a quality property manager on our team made this a very hands-off investment for us and we hope to acquire several more small multi-family properties in the future. Real estate investing really does work if you know your numbers and can find the right property to fit your goals!
Lastly, new investors often ask what to estimate for expenses. After 1 year owning this property, we now have one year of data! These numbers are as a percentage of scheduled gross rents. I did not include the garage rents since the garage accrued no expenses and not every property has one.
Vacancy = 4%
Operating Expenses = 50% and breaks down as follows:
Property management: 12%
Fixed expenses (property tax, insurance, water, sewer, trash): 21%
Variable expenses (maintenance, repairs, lawn care, gas, electric, inspections): 17%