I don't have a lot of updates with real estate, usually just a few per year since the leases usually run 12 months. I'm still learning quite a lot and have a lot more to learn. I wanted to give an update on Unit 2, the condo unit.
My tenants had to move out early due to the wife getting a job in another city but the original lease runs until the end of July. Last weekend I did a walk-through before I put the unit back on the market. The good news is that the previous teants left the place in great shape, I don't even need to hire someone to clean. I also have checks to cover through the end of July should the unit not lease sooner. If I get the unit leased before the end of July then the tenants would get a pro-rated portion of their rent back. Either way, I have over a month to get the unit rented without risking one day of vacancy. This is great. I've also listed the unit with a rent increase to $1000/month from $900/month currently.
The market in Austin in booming and it's hard to find a one bedroom at a decent price near downtown. Although the HOA dues are high , $164/month, the unit gets a lot more traffic than the house I have just outside of town. I already had someone look at the unit yesterday. Last year the Condo was barely on the market 1 day before being rented. This is another reason to raise the rent.
The bad news is that even if I get $1000/month I still won't have positive cash flow yet. I will be really close though. However, with the payments to principal I am still increasing my net worth each month. One of my goals next year will be to pay this unit off. I'm currently coming up with a plan to pay the rental off using an amortization spreadsheet. I'm sure I'll be making a post once I get my plan together. Once paid off I'll have over $500/month income after taxes, insurance and HOA dues. I still hope to have half my income come from rental properties and half come from dividend growth stocks.
That would be great getting that unit paid off and receiving the 500 monthly profit. To get that much monthly in dividend payments I would need a huge portfolio! And you still get the tax benefits real estate has to offer.
ReplyDeleteHi IE,
DeleteYes, it would be huge to have this additional income in addition to my dividend income. I'd need a 150k dividend portfolio at 4% or $171,500 portfolio at 3.5% to achieve this amount of income. I also get to write off expenses as you mention which are a nice tax benefits. Coincidentally, my portfolio is very near this $500/mo mark but it has taken a lot of capital to get here, much less than I would have to put into the condo.
My plan is to keep at least half of my investments into physical real estate that I can lease out and the other half in dividend growth stocks.
Thanks for stopping by!
Wonderful goal. You can't lose paying off a rental property. You'll feel so much better de-leveraging and not having to worry about a mortgage on that property. Enjoy the guaranteed return and the increased cash flow.
ReplyDeleteWe have much in common except that you started with DGI leading to rental real estate and I started with rental real estate and am now trying to develope my DG portfolio. Keep up the good work!
@Investing Early: You see it clearly. This is one way that real estate can be a very lucrative path to FI.
It would take a $150k portfolio to churn out $500/mo in dividends at 4% payout rate. In my case, I currently have a $29,878 balance on one of my rentals that if paid off would return an additionsl $424.57 in addition to the current $76.26 in free cash flow. Total: $500.83/mo. I've put very little money out of pocket to buy this house and yet. The fair value is approximately 85k Compared to a DG portfolio, I'll get the equivalent of $500/mo dividends for only $85k portfolio, or 7% annual rate of return. But more than that, I paid $55,500 for the house giving me closer to an 11% annual return on the and much of that has been paid by tenants.
Rental real estate--when bought right--can give you an amazing jump on the path to financial independence.
Thanks! I do want to deleverage especially since the condo unit isn't making me any money right now. I like the fact that you are getting into dividend growth stocks, I believe they will be a great balance in our overall portfolios to reduce risk.
DeleteYou are correct, I would need to invest more money into DG stocks than into real estate in this situation. However, there are different risks involved. This is why I want to stay diversified. It sounds like you made a great deal on that house. If you can get that kind of return it's a no-brainer.
You touch on a key point; doing your research and making sure you are getting a good deal is very important. This goes for real estate or buying DG stocks.
Thanks for stopping by and I'll keep checking you updates!