In April of this year, I wrote the article How We Used Our IRA to Invest in Real Estate. Now that we’re 6 months into owning this asset, time for a little follow-up.
Quick Recap: the Pensacola property we purchased with our SDIRA, had 2 trailers on it, both occupied, both with one year lease agreements with a record of paying on-time tenants. At such a low purchase price and high cash flow, I went in expecting $5-10k of deferred maintenance. Six months into it, I was dead on. Thanks to my awesome wife for taking this photo at closing and our little man for making sure we signed in all the right places.
Month 1 (April): Not really even month 1, weeks 1 & 2 we received our first service calls. Broken A/C in unit B and leaky sink in Unit A. I initially thought...Fun Times Ahead! but quickly reminded myself we bought these units knowing repairs and deferred maintenance were on the forefront.
Month 2 (May): no issues!
Month 3 (June): Unit B’s AC goes out again. Upon further inspection a leaky coil resulted in replacing the entire unit. A home inspection by my Pensacola property management company revealed a faulty breaker box also on Unit B. Total costs for repairs = $4,100. That should be it for Unit B, as Unit A needs the real work.
Month 4 (July): Stove repair in Unit B: $104. Crickets on Unit A.
Month 5: (August): Oh boy, where to begin. A failed eviction on Unit A, charlie foxtrot of a situation. Nonetheless, I turned this thing around which resulted in me taking on managing the property myself, signing the existing tenant to a new lease – a lease that was mutually beneficial for the both of us. A great time to reiterate how important it is to have the right team members, especially a quality property manager.
Month 6 (Sept): Unit B, no issues. Finished up deferred repairs on Unit A (roof, bathroom floor, plumbing, windows, A/C…yea, a lot not done by the PM group): $2,293.
Before we get started on the #s, a few reminders:
- Last year (2015) my traditional IRA returned a whopping -10% (that’s a negative, as in going the wrong way, ten percent) and my 401K returned 1.4%.
- Cash-on-cash return for this asset was projected to be >20%
- Even though these units were occupied, major repairs (>$500) were expected to bring these units up to code and thus added to the acquisition costs below.
Six months into our first SDIRA Pensacola Real Estate investment, here’s how the #s breakdown:
- Total Acquisition Costs: (purchase price, closing costs, major repairs): $38,293
- Purchase Price + Closing Costs: $31,900
- Major Repairs: $6,393
- 6 Months of Operating Expenses: $2,001
- Minor Maintenance & Repairs (6 months): $1,115
- Property Management Fees (6 months): $231
- Eviction Costs (6 months): $400
- Insurance (6 months): $255
- Rent Revenue (6 months): $4,989
- Expected Annualized Operating Expenses: $4,002
- Expected Annualized Revenue: $9,978
- Expected Annualized Cash Flow: $5,976
- Cash-on-Cash Return = $5,976 / $38,293 = 15.6%
So, not the expected >20% that we estimated, but a helluva lot better than a negative 10%! We’ll see how all the #’s shake out in another 6 months when we can put estimates behind us and put a year of real world #s in our calculations.
- How We Used our IRA to Invest in Real Estate (April 2016)
- Successful REI Takes a Team: Our Roster
- My First Eviction Turned Into Greater Cash Flow
#REI #RealEstateInvesting #HelmsREI