When I jumped into real estate investing in late 2020, I approached it as an experiment. I knew roughly how much it would cost to buy and maintain a house, and what market rent would be, but I didn’t know how much time/effort it would take, if there would be major repairs, if there would be long vacancies…
I’m happy to report it’s been going far better than I ever expected. Here are the numbers on my first property for the last 2 years:
2020
- Cash Inflow = $2,160 (Security deposit, rent, selling the fridge that came with the house)
- Cash Outflow = -$26,547 (Purchase, renovations, mortgage/insurance/taxes)
- 2020 Net Cash Flow = -$24,387
2021
- Cash Inflow = $10,062 (Rent)
- Cash Outflow = -$6,480 (Mortgage/insurance/taxes, water bills and ~$200 of repairs)
- 2021 Net Cash Flow = $3,582 (~13% of my initial investment)
2022
- Cash Inflow = $10,820 (Rent and security deposit for new tenant)
- Cash Outflow = $7,650 (Mortgage/insurance/taxes, water bills, security deposit refund and ~$600 in repairs and cleaning)
- 2022 Net Cash Flow = $3,155 (~12% of my initial investment)
From a cash flow perspective, I’m doing better than I anticipated (estimated $2,000 per year and actually averaging ~$3,300). This is due to both higher rent and less repairs/maintenance than expected. You can see my original estimates in my blog post from 2 years ago.
But the cash flow is only part of the story. I also paid off principal on the loan, and the property appreciated in value over the last two years. Let’s calculate the total return for 2021 and 2022:
- 2021 Net Cash Flow = $3,582
- 2021 Principal Paid = $878
- 2021 Estimated Appreciation* = $21,000
- 2021 Total Return = $25,460 (~96% of my initial investment!)
- 2022 Net Cash Flow = $3,155
- 2022 Principal Paid = $922
- 2022 Estimated Appreciation* = $21,000
- 2022 Total Return = $25,077 (~94% of my initial investment!)
When factoring in price appreciation*, this little house made over $25k per year in back to back years, which is more than I spent in the entire year of 2021. That said, that extra $22k per year is locked up in the house’s equity value. I could access some of that by refinancing and taking some equity out, but can only get all of it by selling (which I’m not planning on doing any time soon).
This is some pretty incredible performance in 2 years, but it’s mostly dumb luck. I had no idea the housing market would go bonkers in 2021/2022. This trend will likely not continue, and I wouldn’t be surprised if the value of the house goes down in the next few years and wipes out a decent amount of those gains.
That said, it’s been a successful experiment thus far, and I’m currently looking to add more real estate to the portfolio. I’ll check back in on how this house is doing in a year or two. Stay tuned!
*calculated by taking the current Zillow estimate of $114,500 and subtracting the purchase price of $72,500 = $42,000 and dividing it by 2 years = $21,000