Rental Duplex Investment Q2 2015 Update

How are you handling the stock market roller coaster ride this week? If you are investing for the long term, don’t stress out too much about the short term volatility. Think of it as an opportunity to pick up some shares at a discount. I’ve been putting off our Roth IRA contribution so this week was the perfect opportunity to average in. Also, don’t check your investment too often. That will just give you an ulcer.

Anyway, there are a ton of articles and news about the various stock markets this week, so I thought I’d give you some respite from them. I’ll go over how our rental duplex is doing instead. This will take your mind off the market for a bit and show you that it’s good to diversify your investment. Let’s see how we did in Q2. This will give me a chance to update Mrs. RB40 (our chief editor) on how the duplex is doing as well. I know it’s late, but better late than never, right?

rental duplexQuick Recap

In 2014, we sold our 4-plex and rental home and acquired a small duplex close to our home. Our old rentals were out of town and I didn’t have the time to drive out there to manage them. This duplex is much closer to where we live and it is in a nice area. The tenants are more financially secure so they can pay rent on time.

We also will need a bit more space when RB40jr gets older so we plan to relocate here in a few years. We can take over both units and perhaps rent out on Airbnb when my mom isn’t here. This home is near our kid’s public schools so that’s convenient. Lastly, using this home as a primary residence will help us reduce tax on the gain when we sell the place in 20 years. That’s the plan anyway.

Rental Cash Flow

IncomeQ1 ExpenseQ2 ExpenseTotal Expense
Rent$12,540
Trash$79$79$158
Water$364$189$553
Maintenance$66$1,264$1330
Mortgage$3,000$3,000$6,000
HOA$60$60$120
Insurance$175$175$350
Property tax$1,500$1,500$3,000
Total$12,540$5,243$6,268$11,511

2015 Cash flow = +$1,029

Okay, Q2 wasn’t that great. We only had +$3 cash flow in Q2, that’s pathetic. This is due to a large maintenance bill. See below for the details.

Rent – The rent is a little below market value for this area. I raised the rent in January and will continue to do so on an annual basis to help cover the increasing operating cost. (Probably just $20/month increase each.) If a tenant moves out, then I’ll spruce up the unit and increase the price to market value. Currently, I’m charging $2,090/month for the two units. I’m pretty sure I can raise the rent to around $2,400/month once we put in new carpet and update a few other items.

Trash and water – The water bill is pretty high here. I replaced the ancient toilet in one unit and plan to do the other unit soon. I also installed some faucet aerators so that should help a bit. The tenants are resistant to low flow shower heads. I’ll let it go for now.

Maintenance – We have some water coming into the basement when it rains hard. This is a big problem in the long term because moisture can cause mold and many other issues. I decided to get it fixed before the rain starts and got a few companies to come take a look. One guy wanted to waterproof the basement by digging a trench around the exterior and put down a waterproof barrier. That will cost over $10,000 so I want to try something else first. A drainage company recommended a new drywell. This cost $1,120 and that’s a little easier to swallow. It turned out that the old French drain was clogged up and I’m hoping the new drywell will do the trick. We’ll see how it performs when we get some rain.

Mortgage, HOA, insurance, and property tax – All these are fixed costs and shouldn’t increase much year over year. Property tax usually rise about 3%. That should be around $200, but it also depends on which bonds pass.

Rental Management

One of the main reasons why we got this duplex is because it was much closer to where we live. It’s near our kid’s preschool so it’s very convenient for me to drop by. According to my log, I went to the rental 11 times in Q2. That’s exactly the same number of trips I made in Q1. That is more trips than I’d like, but at least it’s only 10 minutes away.

DateDriving log
4/1/15Install new light fixture in hallway
4/21/15Home Depot – buy door bells
4/21/15Drove to install door bells and clean up front yard. Didn’t have the right tool for door bells.
4/22/15Install door bells
5/7/15Drove to install water saving devices
5/9/15Return one doorbell to Home Depot- broken
5/16/15Caulk remover from Home Depot
5/28/15Drove to meet drainage guys in the morning
5/28/15Drove to check the drywell installation
5/28/15Drove to inspect finished drywell project
6/16/15Wood glue from Home Depot

It still takes me too many trips to fix one problem. One doorbell called it quits and I had to take a bunch of trips to fix it. Hopefully I’ll figure out how to reduce the number of trips at some point.

Property Value

We purchased the property about a year ago for $560,000 + fees. Today, Zillow estimates the duplex to be worth $683,371! Wow, that’s pretty crazy. However, I don’t know how much I can trust Zillow in this market. I see another duplex for sale a couple of blocks away. The Zestimate is $990,000, but the sale price is just $700,000. That duplex is being sold “as is” so it probably needs some major renovations. I’ll hold off increasing the rental investment value in our net worth spreadsheet for now.

Q2 wrap up

Q2 didn’t go that well because we had a big maintenance bill. That’s okay, though. I want to fix the place up as much as possible while it is still a rental. Once we move in, the repairs won’t be tax deductible anymore. Looking ahead, we will have low cash flow again in Q3 because of the bathroom projects. Q4 should be much better barring any major repairs. We still have one big project left, but I will defer that until 2016. We need to put up new balcony railings. All in all, the rental is performing as expected – not that well for the first few years. Once we fix up everything, we should be in a better shape.

On the other hand, I’m getting along well with the tenants and they pay their rent on time. They plan to stay as long as I keep the rent reasonable so that’s good. Actually, we really like where we live right now so we might put off moving for quite a few years. We’ll see how it goes.

What do you think about our rental duplex? Have you checked your property value on Zillow lately?

 

The following two tabs change content below.
Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
Get update via email:
Sign up to receive new articles via email
We hate spam just as much as you

14 thoughts on “Rental Duplex Investment Q2 2015 Update”

  1. Our first rental property was a duplex as well. They are a great way to generate more income than a single-family rental property.

    This is the same challenge I faced early on working with rentals: “It still takes me too many trips to fix one problem. One doorbell called it quits and I had to take a bunch of trips to fix it. Hopefully I’ll figure out how to reduce the number of trips at some point.”
    We continued to buy more properties so I bought an old ugly truck that I mounted a toolbox in the back. Whenever I made a repair, I bought 1 or 2 extra parts. I tried to make every toilet, lock, paint color, carpet, etc. the same for each property. I used a 5-gallon bucket with a cloth tool pouch that had every common tool I used for repairs. I would carry that in, with a new part, and my cordless drill.

    I found that about 90% of my repairs were completed with one trip, saving me a lot of time. My truck toolbox and additional tools like saws, sanders, landscape trimmers, and additional spare parts.

    Reply
  2. Zillow is hit or miss, from what I can tell. We recently purchased a home and did a lot of research on Zillow and Redfin before making a move. I’m not really sure how Zillow comes up with their numbers, but it’s a good way to get in the ball park.

    We actually purchased through Redfin and they have a pretty good section on their site on comparables. It’s not a laid out as nicely as Zillow’s, where you can see a property on the map, but it does narrow down to a few properties that are pretty similar to yours in close proximity.

    -DP

    Reply
    • I’m pretty sure they have an algorithm to find comparable properties. It’s tough when there is a wide range of value, though. It’s probably more accurate in the suburb because homes in the same area tend to be similar value.

      Reply
  3. My wife and I often talk about getting a rental property, I would prefer to get a duplex where we live in one of apartment and rent out the other (hopefully the rental pays most if not all the mortgage). However my wife doesn’t want to do that she would like to buy our own house and then buy a second house to rent out. Anyway this article helps me to see the benefits of renting as well as the negatives thanks.

    Reply
    • I would tell her living in one unit is temporary. Once you’re in a better financial shape, you can move into a single family home and rent the 2 units. I think that would be a great way to go. Good luck!

      Reply
  4. I’m a little confused on your mortgage breakdown. So your mortgage doesn’t include property tax or insurance. When you say “mortgage” is that just interest or interest plus principal. If “mortgage” is both, then shouldn’t you exclude the principle from your expenses?

    Reply
    • The mortgage does not include insurance and property tax. I’m looking at cash flow so I don’t really care about principle or interest. I still need to send the same amount to the bank.

      Reply
  5. Congratulations on being cashflow-positive! I still think you need to redo the plumbing and let the tenants pay their own water bill. You’re busting your hump to install low-flow toilets, but the tenants backed you off of low-flow showerheads?!? Let them pay for their own long, hot showers!

    Reply
  6. Good job on the duplex and the hands-on work so far, Joe! As long as you’re cash positive, your tenants are paying for your mortgage! Rent always goes up but your mortgage stays the same so your rental income will only increase. Zillow’s estimation is usually a bit on the low side so I would say that your property might be worth more than that.

    Right now, with the interest rate still low and the expectation of interest increase in the near future, there are a lot of buyers and not enough sellers. I want to buy and there might still be good deals out there but they’re hard to come by, especially in CA. I believe that other than a housing crash, the best time to buy a house is in a high interest environment (which drives prices down) and have a lot of cash in hand.

    Reply
    • Zillow estimate is all over the map. The market is too volatile for it to be accurate. The housing mixture probably throws them off too. There are really nice turn key properties and run down rentals in this same area.
      Thanks for the tip. We probably won’t have that much cash on hand. Our money is always invested.

      Reply
  7. Be glad your rental is occupied. As far as repairs, homes can be money pits. It’s no wonder some people prefer renting. As for the basement leakage issue, see how it pays to get several estimates? I always get 3 or more. The power of shopping around. I would just make sure there are no mold/mildew issues left over. Like behind any wall paneling, etc. That stuff can really be sneaky and grow, cause damage, ruin everything stored down there. Go online to see how to clean it up. From ceiling to floors. Use caution and ventilate. Sorry for the home improvement lecture. Like I said, homes can be money pits!

    Reply
    • I’m very glad that our tenants are good people. It should be pretty easy to find new renters. The rental market here is crazy right now. I don’t want to change tenants if I can help it, though.

      Reply

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.