We Earned $231/hr From Our Rental Properties in 2018

The 2018 #s are in! The biggest # we track when it comes down to it is cash flow. While cash-on-cash return comes in at a close second for priority, the main focus for us is cash flow. And while I don’t go into net worth accumulation by someone else paying down your debt (i.e. the tenants) nor do I go into tax advantages, those are hugely beneficial and worthy of their own post. Today, just cash flow. There are several rules of thumb most people use when analyzing properties for cash flow: the 50% rule, the 1-2% rule, the $XXX/per door rule, the Lobster rule, the Alexa rule, the downward dog rule, all sorts of rules. Our primary focus is $100/per door/month and 50% rules.

Wait, before we go any further most of you know I’m involved in a 42 unit apartment complex. For this exercise the 42 unit is not being considered as we are still in process of stabilizing a heavily deferred maintenance property. I’m also not sure my partners want me sharing detailed info on that asset with the world wide webs so I’ll keep this exercise to the properties just my wife and I own. However, 2019 is looking VERY promising for the 42 unit.

Moves & Acquisitions

In 2018 we sold one property (our very first rental property in Pensacola – the one we’ll never sell!) and 1031 Exchanged into a 4 plex. Other than that our focus was geared toward stabilizing a couple acquisitions that were made in mid-late 2017.

Thank You PM Teams!

I can’t say enough about our PMs. Having a full-time job and growing family (ref: How I Balance), we have very little time to focus on managing these properties, plus managing our own rentals is just not what me or my wife want to do. Thus we hire professional property managers to manage all of our properties. We have a few different property managers based on our properties’ locations being in different cities, BUT those property managers are a huge part of why our hourly # is so high. All in all, we averaged about one hour a week working with our property managers. So 52 hours a year. Thank you Team! YOU GUYS ARE AWESOME!

The Numbers

Before we get started, here are a few definitions to ensure you and I are on the same page when it comes to The Numbers:

  • Expenses column includes mortgages (if applicable), insurance, taxes, property management fees, repairs, legal fees, miscellaneous operating expenses and capital expenses. Our expenses were high this year and I get into that in more detail below.
  • Revenue column includes rent, pet fees, and late fees.

Again, I can’t say enough about our PMs and the systems they have in place to keep us abreast with situations but overall they just handle them. So here is how I came to us earning $231/hr on our rental properties in 2018:

  • 52 Hours Worked for the Year (thankful for awesome PMs)
  • $12,038 Annual Cash Flow in 2018
  • $12,038 cash / 52 hours = $231.50/hr

One goal we want our assets to accomplish are $100 cash flow per door/per month. On average we were just shy of that in 2018 so I won’t spend any time discussing that here, but I do want to address the 50% rule.

Not Meeting the 50% Rule

For those of you not familiar, the 50% rule simply states that fifty percent of your rental income should cover all of your expenses (I’m grossly summarizing for the sake of this post). And since only 1 of our properties met the 50% rule, I feel the need to explain, just how close the rest of them were and the importance of keeping separate, sacred accounts for each property to cover vacancy and the more costly, unexpected capital expense items.

  • Little Yellow House: we actually sold this property in February 2018, so only two months into the year. The sell of this property yielded a 77.5% ROI for the life of us owning this property. The proceeds from this house were 1031 exchanged into the 4 Plex – Mobile. So while we experienced a negative cash flow for the 1st two months of 2018 with this property, all-in-all, it provided a great return from acquisition to exit.
  • Duplex – Gulf Breeze: We replaced one unit’s HVAC at a cost of approx. $3700. Not having to do so would have easily put this property above the 50% rule. Thankful for the reserve accounts we established. If you’re not establishing those reserve, sacred accounts for capital expenses and vacancy, DM me.
  • 4 Plex – Mobile, AL: this was the acquisition we 1031 exchanged into from the Little Yellow House. Almost completely turn key, but we had one tenant turnover and a few large repairs to make during the acquisition process – no worries though, we bought this at a bargain!
  • Mobile Home – Pensacola: this is the property from our First Tax Deed Auction. It had a rough 2018 with a tenant turnover, vacancy, a HVAC replacement and some fairly major plumbing issues resulting in >$3k in expenses. 2019 should be a strong, stable year for this one.

In closing, 2018 was a profitable year and I am anticipating 2019 to be much better. By that I mean I’m anticipating our cash flow to almost double as a result from just the two transactions. And while most investors don’t look at hourly earnings from rental properties, my W2 background has me thinking that way. If you’re not engaged with our group on Facebook, you’re missing out on conversing with us and 4,500 other W2 real estate investors. Join Us: Real Estate Investing for the W2 Employee

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We Will Never Sell This Rental Property…SOLD!

A friend of mine recently asked to see a blog post about our first few acquisitions. Starting to provide him with those links (on what I consider my wife and mine’s first buy and hold deals and not my false start), I realized I never posted about our very first deal. How rude of me! Thanks for inquiring Josh!

Our very first acquisition happened in October 2014. I know the month and year but the date is fuzzy as our first child was born only 3 weeks before. I think we zombied our way through the closing. If you ask my wife she’ll probably tell you “Who are you kidding? Jay sleeps like a baby. I think the saying should actually be “I want to sleep like Jay!” And she’s right. Minus the insomnia attacks ever now and then (when I’m really excited about a deal we’re working on), I sleep very well. However, the anxiety of not knowing how to handle our first newborn weighed on me during that time. But she’s right, I can sleep through a dump truck driving through a nitroglycerin plant!

Back to buy & hold property number 1….Our very first rental property acquisition happened in downtown Pensacola. It was a one bedroom, one bath, 600 sq ft single family home. Pictured above, undoubtedly we nicknamed it “The Little Yellow House.”

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The Little Yellow House was a bank foreclosure located in an up-and-coming part of downtown Pensacola. It didn’t need a lot of work and by that I mean, new roof & gutters, new back porch, new flooring in the bedroom, new appliances, replace a few broken outlets & switches, and fresh paint up & all around. The most important item about this property is it hit all of our investing criteria. So we jumped right in.

Closing Day – 1st Buy & Hold – October 2014

Actually, jumping right in might be a slight exaggeration but at the time it was a huge leap for us. Being our first rental property, we were hesitant and VERY conservative on our projections. Should we do it? Should we not do it? This round of questioning and pros/cons list revolved around our conversations many, many…many times. Wow, we were nervous but we finally pulled the trigger and we’re glad we did.

Pro Tip:Our biggest mistake on this property was attempting to do a lot of the interior reno work ourselves. A full-time job, getting used to the new addition and entering the holiday season, it took us 5 months to essentially put some paint on the walls. Quotes from contractors/handyman came in at $1500 with a timeline of 2-3 weeks. This would have shortened our rent ready time window by 4 months @ $600/month rent = $2400. This property rented right away and by paying a handyman $1500, would could have earned an extra $900 by having it occupied sooner…plus we’d have our late nights and weekends back!! 

How we funded this acquisition: We acquired our first rental property with the use of a Home Equity Line of Credit (HELOC) from our primary residence. Three months later we actually sold our primary residence, naturally we paid off our HELOC with that transaction, and thus owned The Little Yellow House free and clear. That all important (to us) cash flow then went even higher. “We are off and running in the buy and hold game with a cash cow! We’ll never sell this property!!”, or at least we thought.

Fast forward three and a half years from ‘we will never sell this property’ to present day…

Several weeks ago I received an unsolicited message from a potential buyer. He reached out to me through this site and told me he had been following The Little Yellow House for several months. For clarity, during a brief tenant transition I placed for-sale-by-owner (FSBO) ads to test the market. I ended up renting it quickly as the demand was there and again, we’ll never sell this property!

Long story short, the potential buyer made an all cash offer that would allow us to pursue some different opportunities as our investing strategy and focus has changed since 3.5 years ago. So, we accepted the offered, closed the deal and celebrated with a family lip sync battle:

So why accept the offer on a property dubbed “We’ll never sell”? The ROI was great and we have been looking to add more units (reference 2018 Goals). The cash from this sale will allow us to pursue our 2018 Goals easier. For an advanced investing technique, I am taking the proceeds from this sale and pursuing a 1031 Exchange, which I’ll dive into once we succeed or once our time runs out. 🙂 Stay tuned but for now, let’s do some quick math!

These are the actual #s from The Little Yellow House (I track our income/expenses through our Small Multi-Family Spreadsheet, now available for download) :

  • Gain from investment:  $57,670
    • Sold Price: $50,000
    • Annual Net Incomes (after all expenses are paid):
      • 2018: $330
      • 2017: $2,564
      • 2016: $1,727
      • 2015:  $3,049
  • Cost of investment: $32,479
    • Original Purchase Price: $22,000
    • Initial Rehab: $8,975
    • Closing Costs @ Sale: $1,504
  • ROI = (Gain – Cost ) / Cost or in this case….77.5%

My apologies to Josh, and my Instagram, Facebook, and Twitter followers. A recent text / post I stated 79% ROI. In 3.5 years The Little Yellow House provided us with a 77.5% ROI…not bad!

Screen Shot 2018-02-05 at 4.00.05 PM

Side Note: This is also the property where we discovered self managing is not for us. We had great tenants and rarely had issues, but with a full-time day job, growing family, trying to expand our side hustles and rental portfolio, we are happy to pay the 10% management fee to experts who are focused on that type of business (just make sure you hire the right PM).

Questions or comments? Leave us a reply below.

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Real Estate Investing Terms: Cash On Cash Return

When performing the Cash-on-Cash Return napkin test, I won’t further analyze anything that is below 12%. The target is 15% and higher but if we can still hit our $100/month cash-flow minimum, we’ll consider it with a lower CoCR.

real estate investing cash on cash return


Cash-on-Cash Return or CoCR

CoCR = annual cash flow before taxes divided by total cash invested

The best way I understand CoCR is like this. … For the scenarios below, let’s pretend I have $50,000 in my Pensacola bank account.  We’re going to make a lot of assumptions here, but remember this is just a napkin test.

Scenario 1: I pay $50,000 cash for a 2 bedroom/2 bath single family house that yields $700/month in rent and Cash Flows $300/month. Over the course of the year (assuming 100% occupancy) my Cash Flow is $3,600 (i.e. $300/month x 12 months). So I take that $3,600, divide it by the $50,000 I spent on purchasing the home and that yields a 7.2% Cash-on-Cash Return for this Pensacola house. Compared to the return I receive on my savings accounts, this is an improvement, but not what we’re looking for on a Pensacola real estate investment.

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Scenario 2: I pay the same $50,000 as a down payment on a $250,000 4-plex multifamily property (most Pensacola banks require 20% down on a rental property). This 4-plex is made up of 2 bedroom / 2 bath (just like our single family residence in Scenario 1). Each unit of our 4-plex brings in $150/month in cash-flow. Less cash flow than Scenario 1 to accommodate for the mortgage payment each month. Again, assuming 100% accuracy for the year, we now have $150/month x 12 months x 4 units = $7,200. Since we used the same $50,000 as a down payment, we divide $7,200 by that same $50,000, giving us a 14.4% Cash-on-Cash Return.

Actually, if this were a real world scenario, Scenario 2 is within range of passing the napkin test and would continue on through our Tripod of Investing Criteria It doesn’t hit the $200/month cash flow # just yet, but more due diligence will reveal if we can increase rents or add another source of revenue from the property to bring those #s up.

To compare, let’s say I just keep that same $50,000 in my Pensacola savings account. The current APR is <1% but sticking with easy math, let’s pretend it is 1%. My return on that “cash” is 1%, or, very horrible…only $500. Considering inflation rates, my return would actually be negative, but that topic is for another post.

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Cash-on-Cash Return (used in another way):

I recently changed insurance providers because of this one property and scenario. My insurance was coming up for renewal and thought, what the heck, let’s shop. Sure enough it was worth it. Once my, now new, insurance provider reviewed my policy and last home inspection, he came back with amazing news. If I installed Hurricane Clips on my roof, my premium would go down approx. $394/year. Cost to install the Hurricane Clips = $965, yielding a Cash-on-Cash Return of 40.8%. I’ll take it! More details of this scenario coming out in a future post. Stay tuned.

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How We Use Our Tripod of Adopted Investing Criteria

We consider appreciation extra icing and don’t acquire based on assumed appreciation, but we also don’t want to be put in a position to exit a property and be required to bring money to closing.


real estate investing pensacola fl

If you’ve been following us you know we have adopted a tripod of investing criteria we use to analyze ever potential acquisition. There are many criteria and tools used in real estate investing, but our current REI focus in the Pensacola area is buy & hold with an emphasis on cash flow. Since cash flow is the #1 goal, we start our analyzing there but each criteria I mention below must be met before we make an acquisition.

Prerequisite: Asset Must Rent @ 1-2% of Acquisition Costs
Also known as the 1 or 2% rule. I was introduced to this rule by the guys over @ BiggerPockets.com and is the first hurdle any potential asset must leap for us to pursue any further. I try to analyze at least 3 Pensacola properties a day with this prerequisite. Takes approx. 15 minutes or less with this prereq and if it passes, we move onto Criteria #1: Cash Flow.

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The 1 or 2% rule is fairly straightforward – the asset must have a monthly rent of 1-2% of its potential acquisition costs. For example, using the 2% rule, if a potential asset has a total acquisition costs (purchase price, closing costs, capital expenses/repairs to make it livable) of $50,000, it must rent for $1,000/month. Knowing the rent values in our investment areas, makes this a quick prerequisite to jump through.

Criteria #1: Cash Flow is >=$100/Month Per Unit
I go into how we calculate cash flow on the Real Estate Investing Terms: Cash Flow post, but essentially you add up all your monthly expenses, subtract those expenses from gross rent. What you have left over is Cash Flow and our target here is $100/unit or in other words $100/door.

Criteria #2: Projected CoCR is >= 15%
Cash-on-Cash Return (CoCR) is a way we analyze Pensacola properties to see how they compare to one another, but also how well they compare against other non-real estate investment avenues (i.e. IRA/401k, stock market, etc.) In the post How We Used Our IRA to Invest in Real Estate, I talk about how previous IRA and current 401K provides a return of 8% on their money. While our criteria is 15%, anything over 12% we look at in more detail. I’m posting in detail how we calculate CoCR and I’ll link back here.

Criteria #3: Asset Acquired @ 20% Below Market Value

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This essentially means we make a lot of offers, low offers. My realtor team calls me Mr. Low Ball and I’m ok with that :). The primary reason we do this and especially right now, is preparing for a dip to happen. The Pensacola market has been on the upswing for a while now and many of the local experts are predicting a dip or slight correction in the next 3-5 years. As the market tends to shift, we will slide the % on this criteria. The biggest takeaway from this criteria is look for a deal!
We consider appreciation extra icing and don’t acquire based on assumed appreciation, but we also don’t want to be put in a position to exit a property and be required to bring money to closing.

Acquisitions are one thing, exits are another. We currently hold 2 criteria as our exit strategy and more to come on those later.

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