A big thing happened this week (technically it happened a month ago also, but this week is a much bigger deal). For the first time since starting our investment journey, we are cash flow positive. We got our tenant toward the end of April, and the rent was prorated for that month. May’s rent went to cover our property management fees for the year. That means June rent is the first time the rent will go directly into our pocket.
April’s rent will go into our pocket as well. However, the property management company keeps $500 in reserves for minor repairs. Any repairs for less than $500 will come out of those reserves and then a chunk of future rent will be added to keep the amount at $500. April’s rent was almost enough to cover this $500 amount so that means June’s rent will actually get sent to our bank account.
This is a big milestone for us. We will be able to pay the mortgage payments out of the amount collected for rent and still accumulate $350 a month for at least the next 10 months (the duration of the lease). That means, without doing anything more than we have already done, we will profit $3500 of actual cash. This does not include any appreciation the property might experience or any loan paydown. It is $3500 of non theoretical, easy to understand cash flow that will go (and stay) directly into our business bank account.
Ideally, we will use this money as part of the down payment for the next property. Assuming the exact same numbers of debt service and rent, we would have $7000 of purely passive incomes. Multiply the $3500 by our goal of 10 properties and we would have $35,000 of purely passive income from rent. Again, this does not take into account more profitable properties, rent growth, or any of the other many ways rental properties have value. This week was the first time our goals felt real. And that’s what made it a big week.
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