See last post for the first half of my momentous wall of text. To continue…
Real estate is my other slightly more passive (theoretically) income stream. I say theoretically because the way I’ve set up this business is more labor-intensive on the front end, with a passive payoff (hopefully) down the line. I shared my mortgages last time, but I’ll include that information in each property summary below. All payments include escrow for taxes and insurance and all mortgages are 15 year. Properties:
- $44,392 (payment $609, rate 3.25%, matures 09/2028, refinanced in 2013)
- $19,885 (payment $290, rate 3.375%, matures 04/2030, purchased in 2015)
- $22,770 (payment $299, rate 3.75%, matures 11/2030, purchased in 2015)
- $32,693 (payment $350, 2.75%, matures 10/2031, purchased in 2016, refinanced in 2017 – I live in this house)
- Aggregated sewer bills for all properties work out to $50/mo
My primary residence is a 4 bed/2 bath. I use one room for myself, and one room for my office (and I do claim the home office deduction). The other two I rent out for $250/mo and an even split of the utilities. However, one of the rooms is vacant so I’m only bringing in $250/mo. See Set for Life for a more in-depth description of strategies like this, but essentially I’m attempting to eliminate/minimize my housing expense. I also have no car payment, so I’m addressing the two largest expense categories for most Americans. This allows you to accelerate wealth creation immensely. I dearly wish I had done this with my original primary residence from 2007 through today, as I’d be much further along.
The other properties are all 2 bed/1 bath houses fully rented (yay!) through July of 2019. Total rents across the portfolio (including my house) is $2500/mo against $1598 structural expense, leaving me about $900/mo in cash flow. Note to other newbies like me, this is not enough! I’ll detail the individual properties deal analysis in the (probably far-flung) future, but I didn’t begin this process with enough reserves for comfort. My immediate goal is to build up to 10% of the total portfolio value as a reserve for capital expenditures and repairs, but it’s been slow going as I’ve replaced a few roofs and other sundries along the way. Turns out roofs are expensive. So far I’ve been bleeding my own income (from the collectibles business and my W2) to keep up with repairs. I’m just lucky I’ve been able to do so and keep things running. The optimistic thing is that each major capex item I replace means I’m good on that for 5-20 years.
From my tax records I can’t really tell what my numbers are per property, as I think my accountant stacked expenses in whatever way they determined was best holistically. So, the summary numbers for 2017 are:
- Rents/income: $26,207
- Total expenses (including mileage and depreciation): $23,235
- Net (taxable) income on real estate: $2,972
Again, the net is the important number as I stack expenses in this area as well. (Again, talk to your tax expert, as I don’t really know crap.) So between depreciation and mileage I’m able to benefit from some of the income without it falling into a taxable bucket. Or at least I think I will be able to one day if I can build up reserves and stop bleeding money into capex.
Long-term I’m planning to use these properties for income in FI (more on this in the future – I’ll need to share my FI strategy and some numbers when I figure those things out). In the middle term I’m thinking I can flip my living expenses to the properties. If I can minimize my W2 income (using a 403b and 457 to shelter most of it) I’m hoping I will be able to achieve FI faster. This is a new intermediate strategy, and I haven’t gone over it with my accountant yet, though, so more on this in the future.
So there you have it – that’s my wildly complicated income! Hope you enjoyed!
Smooches,
Dumpling
