Save up for a home and put 20% down is common financial advice. Well, I have news for you. This is bad advice. You should buy a home with a low down payment as early as possible. Buying a home with an FHA loan is great if you want a low-interest rate and do not have a lot of cash for a down payment. However, this advice should not be taken at the expense of losing your emergency fund or taking on too large of a monthly payment.

I’ve wanted to share this post for over a year. This will actually be the first of a several part series. Each post will run through a different scenario. An FHA home loan allowed me to buy my first property. Buying a home with an FHA loan may be a great option for you to house hack or buy your first home as well.

Buying a house with less than 20% down

A 20% down payment on a home is known as conventional financing. Anything less than a 20% down payment will require Private Mortgage Insurance (PMI).

Private Mortgage Insurance, or PMI for short, is an extra expense built into the monthly mortgage payment for homebuyers who put less than 20% down. Lenders require borrowers to pay PMI until the borrower has at least 20% equity in the property. PMI was designed to mitigate a lender’s loss if there is foreclosure. Many financial experts recommend avoiding PMI. However, I firmly disagree with this belief.

A borrower may request for a lender to stop charging PMI. The borrower will need to demonstrate there is at least 20% equity in the property which will require a new appraisal. Most borrowers get rid of their PMI from a combination of the home appreciating in value and paying down their loan over time. Generally, refinancing the loan provides the best execution for getting rid of PMI.

In summary, PMI is an added expense to your monthly mortgage. This expense is tax deductible. You can get rid of PMI once you have at least 20% equity in your home. We will walk through several scenarios to show how long it takes to get rid of PMI payments.

Why you shouldn’t wait for 20% down payment

Saving for a 20% down payment takes a lot of time and discipline. Meanwhile, while property values are probably increasing while you are saving up for your down payment. This means you need to save even MORE than you originally thought. Heck, by waiting for a 20% down payment you may have missed the boat in some markets and end up priced out of owning a home.

The earlier you buy a home, the earlier you can start building equity. While renting provides flexibility, you will never see your rent money again. As a homeowner, a portion of your monthly mortgage payment goes towards repaying the loan. This is forced savings.

Waiting to buy a home with a 20% down payment means renting for a longer period of time. This likely means you are saving less since its cheaper to own than rent in most of the country. This means less money is working for you. Your landlord(s) will be happy with you renting longer, but you shouldn’t be.

Buying a home with an FHA loan will get you into homeownership and out of renting earlier.

Buy vs. Rent a Home Debate

In 2017, the median rent in the United States was $1,492 per month for an unfurnished apartment. This means half the country pays more for rent and half the country pays less for rent. Obviously, every city and state will have different rental rates. Some places like New York City and Washington, D.C. have much higher rents. Other places like Greenville, North Carolina have much lower rents.

Often, owning is actually more affordable than renting. This is location dependent. However, we will expand on this in the base case and future scenarios.

According to a recent Zillow report, the national average break-even point for buying a home verse renting a place is 1.97 years (1 year 11 months). This means if you plan to live somewhere for two or more years it makes sense to buy.

The break-even point varies across the country just like rental rates. The Los Angeles market has the highest break-even point; it will take homeowners 3.7 years come out ahead. Meanwhile, Memphis boasts the lowest break-even point. Homeowners in Memphis enjoy a breakeven point of 1.32 years.

FHA loan requirements 2018

Having a limited credit history naturally leads to a lower credit score. Buying a home with an FHA loan is a great option for those with a limited credit history or those with less than stellar credit. The FHA loan credit score minimum is 500. In order to qualify for the minimum down payment of 3.5%, you will need a minimum of a 580 credit score. However, some lenders may require a credit score in the 600-650 range.

Lenders will also look at your income and debts to determine if you can qualify for a loan. Debt to Income ratio or DTI is the metric used by FHA loan underwriters. The FHA debt to income ratio in 2018 is 43%. However, borrowers with good credit may be approved with debt to income ratios as high as 50%.

Several cities and states also offer first time home buyer programs. The first time home buyer programs offer loan options with low or no down payments. Check to see if your city or state offers a program for first time home buyers.

The base case for buying a home with an FHA loan

The Base Case for buying a home with an FHA loan. This scenario will use national average/median data for rents, home prices, rates and other metrics.

According to the National Association of Realtors, the price of existing homes increased by 5.4% annually between 1968 and 2009.

This growth rate accounts for the booms and busts in the real estate market. Our base case will use the 5.4% average growth rate from the past 40 years. Future scenarios will look at a slightly lower growth rate, no growth (flat market), a ‘booming’ market and a ‘bust’ market.

This may be a simplistic way to look at real estate and housing market, however, it provides a general picture of homeownership in the United States. New York City’s real estate reacts differently than Miami. Both of these cities’ real estate experience different variables than Kansas City. No one scenario will work for all markets.

As of March 2017, the US Existing Home Median Sales price was $236,600. Buying a home with an FHA loan requires a 3.5% down payment.  A prospective homeowner would need $8,281 for a down payment if they were buying a home with an FHA loan.

The table below breaks out the down payment, loan amount, and monthly mortgage expenses associated with buying a home with an FHA loan. The FHA loan interest rate is lower than a conventional mortgage by 0.25% to 0.50%. This is because of PMI.

Purchase Price	$236,600
Down Payment	$8,281
Loan Amount	$228,319
Interest Rate	4.00%
Amortization	30 years
P&I	$1,090.03
PMI	$133.19
Taxes	$177.45
Insurance	$50
PITI	$1,450.67

For comparison purposes, a prospective homeowner would need $47,320 for a 20% down payment. That’s $39,039 MORE than what it would cost to buy a home with an FHA loan.

Ask yourself, how long would it take you to save an additional $39,000?

Saving Per Month	# of Months Required	Years
$100	390.4	32.5
$250	156.2	13.0
$500	78.1	6.5
$750	52.1	4.3
$1,000	39.0	3.3

Depending on your savings rate, it may take you between 3 years and 3 months or over 30 years to save up for a 20% down payment. Buying a home with a low down payment is starting to seem more attractive, right?

That’s because it is. But this is not the only factor to consider. While savings for your 20% down payment, more of your income is going towards rent. While you are renting time is still moving forward. As time passes by, property values are generally appreciating.

Using the same assumption as before, the table below will show how much you may spend on rent while you save up for the down payment. The rent calculation assumes today’s median rent of $1,492/month. This figure does not include any rent increases or account for inflation; you will likely pay more given rents go up over time.

Saving Per Month	# of Months Required	Years	$ Spent on Rent
$100	390.4	32.5	$582,462
$250	156.2	13.0	$232,985
$500	78.1	6.5	$116,492
$750	52.1	4.3	$77,662
$1,000	39.0	3.3	$58,246

Likewise, property values generally increase over time. Sure, there will be peaks and valleys. However, over a 40 year period, home values increased by 5.4% annually.

Let’s assume you have enough money saved for a 3.5% down payment based on today’s median home price. However, let’s also assume you wanted to put 20% down instead of buying a home with an FHA loan. Today you have $8,281 but you would need $47,320 to avoid PMI. This means you are short $39,000.

Let’s also assume you can save $500/month towards your down payment. At this pace, you will reach $47,320 in savings in about six and a half years. A lofty goal, but not unreasonable if you are dedicated.

But, during the same time property values continued to grow. The median home price is no longer $236,600. While you were saving for the past six years the median home price increased to $324,383. This means a 20% down payment is now $64,877.  You are now $25,838 short of having a conventional downpayment and avoiding PMI.

The table below shows how much more you’ll need to save based on your savings rate:

Saving Per Month	# of Months Required	Years	New Home price	New 20% Down Payment	Gap
$100	390.4	32.5	$1,273,252	$254,650	-$215,611
$250	156.2	13.0	$468,752	$93,750	-$54,711
$500	78.1	6.5	$324,383	$64,877	-$25,838
$750	52.1	4.3	$291,996	$58,399	-$19,360
$1,000	39.0	3.3	$277,036	$55,407	-$16,368

Now, let’s take a look at what would have happened if you bought a home today instead of waiting for a 20% Down payment. The table below shows how much principal, interest, PMI, taxes, and insurance were paid for each of the first three years.

Year	Total P&I	Interest	Principal	PMI	RE Tax	Insurance	Total	Loan Balance	Property Value	LTV
1	13,080	9,060	4,021	1,598	2,129	600	17,408	224,298	249,376	89.9%
2	13,080	8,896	4,185	1,598	2,129	600	17,408	220,114	262,843	83.7%
3	13,080	8,725	4,355	1,598	2,129	600	17,408	215,759	277,037	77.9%

The table also shows the loan balance decreased while the property value increased over time. Based on this scenario, the homeowner would achieve 20% equity somewhere between years two and three. This would allow them to refinance their loan and get rid of PMI which would result in monthly savings of $133.

At the end of year three, the homeowner would have $61,278 of equity in their home. This includes $8,281 from their down payment, $40,436 from the property appreciating in value over three years, and $12,561 from paying down their mortgage

Property Value  @ the end of Year 3	$277,037
Original Property Value	$236,600
Equity From Appreciation	$40,437
Down Payment	$8,281
Original Loan Amount	$228,319
Loan Amount Year 3	$215,759
Equity from Principal Reduction	$12,560
Total Equity @ the end of Year 3	$61,278

After three years the homeowner would have paid their loan down to $215,759 and the property would be worth $277,037. The homeowner’s loan to value (LTV) is now 77.9%. This means the homeowner now qualifies for a conventional loan and can refinance to get rid of their monthly PMI payments. Heck, the owner could even refinance the closing costs into their loan and pay no out of pocket costs.

In this scenario, buying a home with an FHA loan now would have been better than renting.

The renter would have spent $1,488 more on rent over three years than the homeowner spent for their mortgage payment (principal, interest, taxes, insurance, and PMI). The renter also missed out on over $40,000 in equity through appreciation. Additionally, the renter will never see their rent money again. The homeowner was able to pocket $12,560 by paying down their mortgage. After three years of savings, the renter still may not be in a position to make a 20% down payment on a home.

Buying a home with an FHA loan or a low down payment has many benefits. In the future, we will continue to explore other scenarios.

Future posts will include the following scenarios:

Slightly more conservative case:  Modest (less) appreciation

The Flat Scenario: No inflation

Booming market: The Austin Housing Market

Making Extra Payments

House Hacking Scenario

House Hacking and Extra Payments

The Bust Case: When the housing market corrects

Doomsday Scenario

Selecting the right tenant will lead to great success, riches, and happiness as a landlord or property manager. The wrong tenant can unravel all of your hard work, cause headaches and make life unbearable as you quickly reach for the ‘for sale’ sign.

Over the years of being a landlord and managing properties for others, I’ve enjoyed great success in screening and selecting tenants. We were managing over 50 properties before I stepped away from the property management business. During that time I successfully placed and managed hundreds of tenants.

Most of our tenants were very pleasant and great to deal with. A few tenants were high maintenance and dealing with them was difficult. Despite the rare ‘diva’ tenants, we seldom had a vacancy.  None of our tenants trashed their place. We managed a 100% collection rate (for rents).

In the past, we have discussed how to fill a vacancy at rental properties. But what do you do once someone is interested in renting your place?

Rental Applications and Screening Tenants

Screening potential tenants is a must as a landlord or property manager. Common sense dictates an inspection when buying a home. Why wouldn’t you do the same with tenants? You don’t want to be stuck with a bad tenant.

Spending a few extra minutes up-front may save you from countless headaches. I’m not suggesting you make your tenant have a physical. Rather, I am referring to your screening process, rental application, and rental criteria. Not all tenants are created equal. Learning how to screen bad tenants is important.

This post will show you what information to collect in your rental application. Additionally, you will learn what to do with this information, or if you should move forward with a potential renter. We will discuss everything from previous landlord references to employment verification and credit and background checks.

Conducting proper due diligence will greatly increase your success as a landlord or property manager. Failing to do your homework may leave you exposed to many risks.

Your rental application should include the following sections:

The Rental Application

Below, you will find information to create your own basic rental application. You do not want to jam too much information into the rental application. Personally, I prefer a simple rental application; most applicants do as well.

Applicant

The applicant section should capture all personal information of the applicant or co-signer. The information collected in this section of the rental application will be important for pulling credit reports and conducting criminal background checks. The applicant section should include:

• First, middle, and last name
• Social Security Number (vias number, a copy of the  visa and a copy of applicants passport for international applicants)
• Date of birth
• Current address including city, state, and zip code
• Email address
• Personal phone number
• Work phone number

Current Residence

This section will capture all the information related to the renter’s current living arrangement. You will also use this section for a landlord reference. This section of the rental application should include the following:

• Is the current residence rented or owned
• Monthly payment
• Length of time at current residence
• When the lease ends
• If notice has been given
• Current landlord name
• Current landlord contact number
• Reason for moving

Previous Residence

This section will be very similar to the current residence section of the rental application. I aim for two or three residences listed in the rental application. Note, younger applicants may not have as long of a rental history. Be sure to include:

• Was the previous residence rented or owned
• Monthly payment
• Length of time at the previous residence
• When the lease ended
• Was notice given
• Previous landlord name
• Previous landlord contact number
• Reason for moving  

Occupants

This section of the rental application should list every person that will live at the property. I recommend everyone over the age of 18 be on the lease; minors are not required on the lease but should still be listed on the application. This section should include the following:

• total number of occupants
• each occupant’s full name and age
• Pets – yes or no
• What kind of pet, breed, weight, age

Employment

The employment section will outline the applicant’s employment information. This section will be helpful for verifying employment. The employment section of the rental application should include the following:

• Employer’s name
• Type of business
• Address
• Position/Title
• Length of employment
• Name of supervisor
• Supervisor’s contact number

Income

This section will show the applicant’s income. Knowing an applicant’s income will help determine if they make enough to pay the rent. The income section of the rental application should include the following:

• Salary (annually, monthly, bi-weekly, or weekly)
• Commissions/Bonuses (if applicable)
• Other income

Assets

Income may not be the entire story for a renter. Some examples may be retirees, students or self-employed. The asset section of the rental application allows applicants to list other assets. This allows applicants to further prove their creditworthiness as a renter. The asset section of the rental application should include the following:

• Checking account
• Saving account
• Retirement account
• Stocks/Bonds
• Other

A prime example of when assets make up for income – I use to manage a penthouse apartment (condo actually) in the city. A guy and his girlfriend applied to rent the place for two years. Their income was just below a level where we felt comfortable with them as tenants. However, the guy had a trust fund worth over $8 million. Given the assets, we were ok his income was a few grand short of our income requirement.

Emergency Contact

The emergency contact section of the rental application should include the following:

• Name
• Relationship to applicant
• Address
• two contact numbers

Questions

• How did you find this property?
• Have you ever filed for bankruptcy? If yes, please explain
• Have you ever been sued for non-payment of rents or evicted of non-payment? If yes, please explain. (personally, I will never rent to anyone who has been evicted. I do not recommend you rent to someone with a previous eviction.)
• Have you ever willfully refused to pay rent when due? If yes, please explain
• Are there any current judgments, lawsuits or bill collecting proceedings against you? If yes, please explain.

Bonus section

Be sure to include your rental criteria in the rental application. Clearly state your income and debt requirements. Be sure to include the minimum credit score and rental history requirements.

Income

I personally look for gross annual income (income before taxes) to be no less than 42 times the monthly rent (3.5 times). Some landlords may have a different opinion, however, 36-48 times the monthly rent is common.

For example, if the rent is $1,000 a month, I want to see an annual income of at least $42,000/year or a monthly income of $3,500/month.

If a tenant does not meet the required income, they will need a co-signer or be able to show substantial liquid assets.

Debt

The total amount of the tenant’s monthly debt (credit card payments, car loans, etc.) plus the monthly rent should not exceed 36% of your gross annual income.

For example, if the rent is $1,000 a month. The applicant’s only debt obligation is a car loan for $500/month. In this instance, I want to see that all of their obligations is less than 36% of their gross annual income.

So, $1,000 + $500 = $1,500 / 0.36 = $4,166.67/month in pretax income

Or on an annual basis: $1,000 + $500 = $1,500 x 12 = $18,000 / 0.36 = $50,000 in annual pretax income

Credit History

All applicants must have a satisfactory credit history and your rental application should state this. You should also state that you will obtain a credit report on all adult applications. Reports supplied by applicants will not be acceptable; make sure to obtain the reports from a third party vendor.

I also recommend stating that credit reports must not show any defaults, consistent late payments, outstanding judgments or collection items. Additionally, Co-signers are not permitted for applicants with bad credit.

Rental History

Tenants must have a satisfactory rental history. State that you will conduct a nationwide check of Landlord/Tenant court records. Make sure you use a vendor and check this information. A few minutes of your time upfront can save you some serious headaches down the road. Personally, I recommend avoiding any applicant that has been evicted in the past.

Fair Housing Act

Perhaps the most important part of your application – be sure to include language that states you will comply with all aspects of The Fair Housing Act. An overly simplified summary of the Fair Housing Act – you cannot discriminate based on race, color, religion, sex, handicap, familial status, or national origin. You may face fines and legal troubles for violating the Fair Housing Act.

Screening Tenants with the rental application

The real fun begins after your potential renter completes a rental application. The three steps below will tell you a lot about your applicant. Based on the information you will need to make a decision to accept or reject the application.

1.  Credit and background check 
2. Employment and income verification
3. Landlord references

Personally, an application is not complete until all tenants in the party have submitted the rental application and paid the application fee. This Important to consider when you have several applications for a high demand property. We typically operated on a first come first serve basis.

Credit check

Once a rental application is complete, you should submit all the necessary information to your vendor for the credit and background check. This is a VERY important step in screening your tenants.

First, a credit report and credit score are like an ‘adulting report card’. A quality credit report with a reasonable credit score and a track record of on-time payments is a strong indicator the potential tenant will pay their rent on time. Alternatively, A poor credit score and a track record of delinquent payments may be a red flag and indicate the applicant may not be financially responsible or unable to pay their rent on time.

Don’t skimp on the credit report.

Background check

Second, run a background check. See if the applicant has a criminal history or a history of being evicted. Avoid applicants with a history of evictions. Use your best judgment when looking at other crimes.

For example, some may be ok renting to someone who was busted for underage drinking in college. However, most people would probably not be comfortable renting to those who were convicted of more serious offenses.

Employment and income verification

Contact the applicant’s employer. Verify that the applicant is in fact employed by the company. Ask the employer questions like:

• How long have they been with the company?
• What is their role/position?
• Character reference.
• Are they responsible? Do they show up on time?
• Would you rent to them?

If you have reservations about the applicant’s employment or income, you may ask for them to verify their income. Landlords commonly ask for the two most recent paystubs for verification.

Google is also your friend. Google the applicant. Many people are on LinkedIn or their company’s website. Check to make sure the employer contact information is not actually a friend or relative.

Landlord references

Speaking with the applicant’s previous landlord is a must. You will learn a lot from a previous landlord. This may help you avoid a bad apple. I’ve had bad tenants in the past, but I am not going to pawn them off on a landlord that is willing to do their due diligence.

Likewise, I have avoided a ‘professional tenant’ by checking on a landlord reference. The applicant in question had not paid rent for the previous six months to his current landlord and was in the middle of an eviction battle.

When calling landlord references, check to make sure you are not talking to a friend or family member of the applicant.  Check public property records to verify the owner; a quick Google search will produce the owner’s name. Additionally, google the contact information provided by the applicant; you may be shocked by what you find.

If the tenant currently lives in an apartment building, be sure to talk to the management company.

When speaking to the current or previous landlord, ask the following:

• Have they been tenants at [insert address or building name]?
• What has their rent been and for how long have they been living there?
• Have they paid their rent on time?
• Have they taken good care of the property?
• Have there been any unusual repair request or noise/sanity violations?
• Would you rent to them again?

Making a decision

Performing a credit and a background check on potential tenants is a must. Be sure to include these two steps in your tenant screening process. Verifying an applicant’s employment and income will allow you to make an educated decision on the applicant’s ability to pay the rent. Reaching out to the applicant’s previous landlord may be very insightful.

In my experience, applicants who pass all three stages turn into great tenants an overwhelming majority of the time. You may get the occasional bad apple or high maintenance tenant. However, this process will help you avoid nightmare tenants. Never skimp on your due diligence. As President Ronald Regan once said, “trust, but verify.”

I love dividend stocks and believe dividends provide a great source of passive income. Quarterly, I provide updates on my dividend income and if I buy dividend stocks.

Using ‘The Dividend Report‘ section of my blog, I share my progress. I will also share dividend growth stock ideas. Additionally, I will share why I buy or sell. Dividends are truly a wonderful thing.

The Dividend Report Q2-2018

For over a year, I’ve worked towards the same goal. I want my average dividend income to provide $1,500/month. My plan has dividends providing 25-33% of my monthly income.

Q2-2018 Dividend Income

Like last quarter, the stock market remained rocky with several ups and down. The S&P 500 posted a 2.93% gain in the second quarter of 2018.  This put the market in positive territory for the year after as the market recovered from the first negative quarter in almost two years.

In times of volatility, it’s easy to be fearful of the market. However, if you can keep your cool, market volatility also gives great buying opportunities for stocks. I added to one of my dividend stock positions this past quarter.

I would have bought more stocks, however, I am focusing on paying off my student loans and the HELOC I used to purchase rental property #4.

The graph below shows my dividend income history since 2013:

The table below shows my dividend history since 2013:

Q2-2018 vs Q2-2017

Last year’s Q2 dividend income was $686.46. This quarter I received $987.86 dividends. This is $301.40 or 43.91% more compared to the same period last year. This was largely due to the dividend increases that I outlined at the end of last year, buying low-cost index funds every week, last quarter’s purchases, and maxing out my 401k.

This quarter vs. last quarter

My Q2-2018 dividend income was $987.86. Last quarter (Q1-2018), my income was $492.98. Are you scratching your head wondering why there is such a big difference?

I certainly did.

A few of my funds do not pay dividends in the first quarter.

Additionally, I also owned more stock in the second quarter because of my regular index fund purchases and 401k contributions.

Oh, I bought several stocks in Q1. However, I missed the Q1 dividend for some of these companies.

Thankfully, my dividends continue to grow when you look at the same time periods of each quarter and on an annual basis.

Last four quarters of dividend income

The past year (Q3-17 to Q2-18)  year my total dividend income was $4,111.06. The last report, I made $3,809.66 from dividends. This is a 7.1% increase compared to the previous 4 quarters; I am very happy with this increase.

There are two main reasons for the increase.

First, I  continue to max out my 401k. This will be the third year in a row of achieving this goal. Regularly contributing to a 401k is one of the 6 steps to a 6-figure net worth. In addition to my 401k contributions, I also max out my Roth IRA and buy stocks in a brokerage account. So, basically every month I have more money working for me.

Second,  10 of my stocks increased their dividend. This means I own the same amount of shares. Each share now pays me more for owning the same great company. How awesome is that?

My average monthly dividend income is now $342.89 ($4,111.06 / 12 months = $342.89), which is 22.84% of my current goal of $1,500/month. Previously I was at 21.16% of my goal. For the rest of 2018, I am hoping to significantly improve my dividend income. I would like to reach my dividend goal by no later than 2019. This is a lofty goal but worth a shot.

I will work towards this goal by contributing the maximum amount to my 401k. Additionally, I will continue to purchase low-cost index funds on a weekly basis. Furthermore, I will buy dividend growth stocks as I opportunities to buy them at discounts.

New Dividend Growth Stock Purchases

I added to one of my dividend growth stocks during the second quarter. Earlier this year, I established a position in Dominion Energy. The company’s stock continued to fall with the market volatility; this was an opportunity I took advantage of as I bought more shares. Below you will find the summary I shared last quarter on my initial purchase.

Dominion Energy Inc. ($D) – I absolutely love this company and have followed them for years. This was also a new purchase. Dominion is a utility company in the mid-Atlantic region that provides electricity. The company also operates a liquified natural gas (LNG) business. In fact, Dominion is the first company to ship LNG internationally. Combine this with their recent acquisition of SCANA, Dominion offers a company with great assets in an industry with high buriers to entry. The company has a very healthy balance sheet and highly predictable revenues. Utility companies are basically legal monopolies. Best yet, the company’s dividend is approximately 5.0% AND the company is committed to increasing their dividend by 10% annually through 2020.

 

 

June was an interesting month for my rental property portfolio.  In some ways, it was a quiet month. In other ways, it was busy with a few curveballs. In fact, I had a new ‘first’ experience at one of my properties.

Most importantly, June marked the first month of having a renter at rental property #4. The ‘new’ rental property has been my slowest project to date. Some factors were out of my control, like dealing with the city. Others were self-inflicted like being busy and having a demanding life.

The Landlord Report- June of 2018

Hello there – welcome to another “Landlord Report”. This monthly report will share my experiences as a landlord. The report will show EVERYTHING related to my rental properties and life as a landlord…

I will discuss the rents that I collected, mortgage payments, and other ‘landlord items’. Additional topics may include repairs, finding new tenants and any other items that might randomly pop up. The report will also share how much money I made and the amount of time (hours) I spent being a landlord. I want to show the world being a landlord is a wonderful thing.

Throughout this process, I aim to be as transparent as possible. Being a landlord and owning rental property is a wonderful way to earn (mostly) passive income and allow you to buy back your time faster.

I hope you follow along with this monthly series. The Landlord Report can serve as a guide to owning rental property. Please feel free to contact me with any questions – happy to provide insight.

The table below outlines all my income and expenses for the past month:

As you can see, June was a profitable month for my rental property portfolio. Rental property #4 is only partially leased. There was a costly repair that and I haven’t received the bill; I will share the details with you this month. I also did not receive the bill from last month’s work at rental property #3. My contractor was lazy with his billing. Both of these items will be captured next month (ouch).

Two of my properties experienced a perfect month in May. A perfect month means that I collected 100% of the rent and had no expenses other than the mortgage.

Being a landlord is not all sunshine and cash flow. But! I still love being a landlord.

Below you will find a detailed account of what happened at each property this month.

Rental Property #1

The Starter Home

Rental Property #1 Summary

Rental property #1 had a perfect month. The tenants paid their rent in full and on time. I collected the $2,325 on my way home from work. This took an extra 20 minutes of my time but I was the benefactor of a free beer provided by my tenants. Gotta love getting paid to drink a cold one.

Rental Property #1 Summary

In summary, rental property #1 – earned $356.76* and I spent about  20 minutes managing the property. 

My mortgage debt dropped by $723.67 from my monthly mortgage payments. When considering the principal reduction, I made $1,080.43.

*Remember – this is an accidental rental that I plan to live in during FIRE.

Rental Property #2

The Fixer-Upper

Rental property #2 enjoyed a quiet month. The property’s mortgage increased to $2,635.11 to account for an increase in property taxes. Otherwise, nothing to report.

The tenants paid their rent of $4,050 in full and on time. Rent collection required me walking downstairs to get my morning cup of coffee. Does life get any easier than that?

Rental Property #2 Summary

In summary, rental property #2 – earned $1,414.89**. I spent about 20 minutes managing rental property #2 this month.

My mortgage debt decreased $738.17. When factoring paying down my debt, rental property #2 made me $2,153.06. Not bad for about a couple of minutes of work. Oh, and I got a free place to live.

**I also live in the house and get paid to live here. Pretty sweet right? House Hacking is awesome.

Rental Property #3

My Duplex

Rental property #3 had another busy month in June. The eviction saga continued with a temporary solution. Both tenants’ received a three-month extension in their rent program. There was also a minor plumbing repair in the downstairs unit.

As I mentioned last month, I am no longer cutting the grass at the property. My time is too valuable for this task. A quick phone call and PayPal transaction will be the new norm for lawn care.

Lawn cut:

Total cost: $40.00

Total time: 0 hours 15 minutes

I still have not received the bill from last month’s pipe replacement. The expense that occurred in May will now show up in July’s Landlord Report.

The downstairs apartment also had a plumbing issue. Long story short, the toilet was backed up. This problem was caused by too much human waste and toilet paper clogging the drain. I will spare you pictures this time 😉

Anyway, the tenant lied about this plumbing problem to get me to the property. You see, the tenant’s lease clearly states she is responsible for keeping drains and other plumbing fixtures in working condition. I attempted to plunge the toilet but this was the mother of all clogs.

Unfortunately, I called a plumber on her behalf to fix this problem. I also paid the plumber to keep my relationship strong with him. I’ve requested a reimbursement for the expense as it IS the tenant’s responsibility. Worst case, I take this from the security deposit when the tenant moves out. Best case, I am reimbursed.

Clogged toilet:

Total cost: $180.00

Total time: 1 hour 45 minutes

Below is a breakout of the utility expenses. The gas company is STILL waiting for permits to install the second gas meter. As the tenants turn over, I will no longer pay for gas or electric. However, the DC landlords are responsible for the water bill in multi-unit buildings.

Gas Bill: $46.77

Water Bill: $158.15

Electric for unit 2: $74.92

In summary, rental property #3 – earned $1,316.08 and I spent about 2 hours of my time managing this property.

Rental Property #3’s mortgage debt also decreased $415.24. When factoring in paying down my debt I made $1,731.32.

Rental Property #4

This was the first month with a tenant at rental property #4. Given that I’ve carried this property for 8 months with no rental income, I was ready to have someone move in. In fact, I even broke some of my rules to do so.

I agreed to rent one of the units to a college student who was interning in the city for the summer. His lease is for only two months and he will move out at the end of July. This rental income will be much appreciated as it will cover a bulk of the monthly expenses.

However, you got to love when lighting strikes. The drain for the tub rusted out on his first day living in the apartment. Thankfully, my dream team tackled this job the next morning. My go-to contractor installed a brand new tub in a matter of a few hours. Not a cheap fix though.

New bathroom tub:

Total cost: the bill to be posted next month

Total time: 2 hours 15 minutes

Administrative work associated with new tenants for other units:

Total cost: $0.00

Total time: 3 hours 5 minutes

Water Bill: $53.89

Electric for all units and common area: $103.22 (I will only pay for the common area once all the units are leased)

Portfolio Summary

In summary, I spent about 8 hours of my time maintaining my rental property portfolio.

In June, my rental properties generated $2,361.83 in cash flow which is $295/hour. This month required a modest time commitment. Though, I probably spent at least another 10-20 hours stressing, prepping, and thinking about rental property #4.

My mortgage debt decreased $2,312.72 last month which further increased my net worth.

Factoring in repayment of debt and cash flow, my rental properties earned $4,674.55. This is $584.32/hour which is awesome. If you factor in stressing 20 extra hours, that lowers my hourly earnings to $166.95/hour. Still pretty damn good. My day job doesn’t pay that well. Being a landlord and owning a rental property portfolio is great. What is your excuse for not owning a rental property?

 

Today, we have a guest post by Anton Ivanov. He is a US Navy veteran, real estate investor and entrepreneur with a 35 unit rental portfolio spread out across 4 states. Anton is the 

founder of DealCheck – the leading real estate analysis software used by 50,000+ investors and agents to quickly analyze and compare investment properties.

5 Key Financial Moves for Becoming a Successful Real Estate Investor

Real estate is awesome when it comes to building a steady stream of passive income and growing your wealth. There aren’t many investments that will generate upward of 15% per year and give you a bunch of tax deductions at the same time.

But owning rental properties does come with added financial risk. A house is a physical asset that needs to be maintained and protected. Dealing with tenants can pose its own challenges and potentially expensive problems.

So before you start investing in real estate, it’s a good idea to review your finances and make sure your prepared. Not only will this give you some piece of mind, but will also help you grow your rental portfolio that much quicker.

Here is what you can start doing today:

1. Build Up Your Emergency Fund

Having a solid emergency fund is a no-brainer for anyone. But if you are considering buying rental properties, it becomes even more important.

Why? Well, there is a lot that can go wrong with a house. The roof may start leaking and need repair. The water heater, AC or HVAC may break down. The tenants could trash the property and skip town. Or you can simply have a longer than expected vacancy period and still be on the hook for the mortgage payments.

When you invest in real estate, your emergency fund needs to cover not only personal
emergencies, but also real estate emergencies as well.

In addition to saving the recommended 6 months’ worth of personal expenses, you may want to consider having a separate emergency fund for your properties. I keep a reserve of about 3-5 months’ worth of expenses for each property on top of my regular emergency fund.

It may sound like too much cash just sitting around, but it helps me feel prepared if things go wrong.

[Note from Drew: this is great advice. In fact, this is something that I recommended in 8 ways to crush if after graduation, in your 20s & beyond. Emergencies, whether personal or real estate related will always happen. Having an emergency fund will help you through tough times. I’ve incurred over $8,000 of emergency expenses before and was glad I had an emergency fund to bail me out.]

2. Pay Off High-Interest Debt

Investing in real estate (or other things like stocks) will grow your wealth by providing a positive return on your money. Each year, the cash you invested will bring in more cash.

You can look at your debt doing the opposite – because of the added interest, your debt is actually costing you money each month that you don’t pay it off. So effectively, it gives you a “negative return” on your money.

Having high-interest debt is counter-productive to investing in real estate. Think about it. Sure, you can take that $20k and buy a rental property that will yield a 12-15%.

But if you have a high-interest credit card or consumer debt at 16-18% interest, you’ll actually be better off paying that off first and then focusing on investing. You don’t want your money working against you.

[Note from Drew: again, this is great advice. High-interest rate consumer debt will kill your ability to create wealth. This is something I talked about in depth in the 6 steps to saving a 6-figure net worth.]

3. Work on Growing Your Income

Investing in real estate is capital intensive. What that means is that you’re going to need cash for down payments, closing costs and repairs before you can buy your first property. How much cash you’re going to need will depend on where you buy (and what financing strategies you’ll be using), but you’ll probably need at least $20-50k per property.

Until you build up your real estate portfolio to the point where it generates enough income, the up-front cash will need to come from your personal savings. Thus, having a high income (and a high savings rate) is the key to growing your portfolio quickly.

Most people understand the value of living a frugal lifestyle, but fewer realize that frugality can only take you so far. Increasing your income, on the other hand, is potentially limitless. And the more you make, the more you’ll be able to save and the faster you’ll be able to grow your rental portfolio.

There are many things you can do to increase your income. Here are a few ideas:
– Work up the corporate ladder and always look for better and more lucrative positions
– Consider switching careers or branching off to a new role if you feel you’re hitting a
salary ceiling
– Look into doing freelancing, consulting or other part-time gigs in your spare time
– Start a side business or a side hustle that can bring in additional funds

This is by no means an all-inclusive list, so flex those brain muscles and come up with some creative ways you can bring in more money.

[Note from Drew: Anton knows what he is talking about. Earning more solves a lot of problems. Frugality will only take you so far and you’ll need capital to start investing in real estate. Personally, I am a fan of offensively building wealth.]

4. Increase Your Savings Rate

Having a high savings rate and living a frugal lifestyle goes hand in hand with increasing your income. What good is all of your take-home pay if you spend it all, right?

There are the obvious steps you can take (like having a budget and “paying yourself first”), but I think the biggest enemy we all face is lifestyle creep.

It’s natural to want better or bigger things as we progress through life. And when you get that raise at work, it oh so tempting to upgrade your car or your house, start going out more often or go on that dream vacation you’ve been putting off.

Before you know it, all of that extra income has been used up by the added expenses and your overall savings rate actually goes down. Definitely not what you want.

What has helped my wife and I stay consistent with our savings is to always re-calculate our savings/investment contributions after any raise or additional income. We bump them up accordingly to keep our savings rate exactly the same as it was.

This helps us keep saving more money, but at the same time gives us a little more spending budget to feel rewarded for our hard work.

[Note from Drew: Anton truly has a grasp around personal finance and real estate investing. This is rockstar advice and a great way to avoid lifestyle inflation.]

5. Find a Reliable Lender

In addition to being limited by your available cash, the second potential roadblock to growing your real estate portfolio will be your ability to acquire financing.

Finding a reliable, easy-to-work-with lender is absolutely crucial, and you should start looking for one way before you find that perfect investment deal.

For most new investors, it makes sense to start with financing their properties with
conventional, 30-year, fixed rate mortgages. They will have the best interest rates and will help you maximize your cash flow.

Most banks will have a mortgage program, but not all will be willing to work with investors. Check with your existing banks or credit unions first, but be prepared to look elsewhere if they can’t help you.

I like to work with mortgage brokers instead of lenders directly. These professionals can help you price loan programs from several different banks and find the one with the best interest rates and lowest closing costs.

There is usually no cost to you when working with mortgage brokers and they can help you submit all of the required documents just once, instead of doing it for every lender separately.

[Note from Drew: I couldn’t agree more. I’ve always said your mortgage broker is the most important member of your real estate team.]

Wrapping Up

Investing in real estate is exciting and many people can’t wait to start looking at potential properties right away.

But spending a little time getting your finances on track beforehand can not only help you protect yourself from the unexpected, but will also help you grow your portfolio that much quicker.

I promise you will thank yourself later!