The Cash Flow Rentals Hustle Report #4 (QTR 4 2015)

Hey Hustlers!

This quarters hustle report comes as a blog post but we’re thinking that over the next couple quarters that it will develop into video form.

Why?

 

Because it’s much easier to explain things that are going on in video. We can actually show you things much more clearly, and frankly it’s a lot more fun.

 

That being said, here’s what you need to know about this report (in case you don’t want to read the whole thing).
  • I had a case of identity theft causing 2 homes that we had under contract to go bust (losing us over $4,000+, sorry Diego).
  • We evicted a tenant (that was fun…) and making adjustments to our lease.
  • We’ve had a few hiccups with collecting rent payments…
  • And lastly our quickbooks & accounting statements for the quarter and all of 2015.

 

So onto the report…

 

Identity Theft:
As we mentioned above I had a case of identity theft. That means that someone took my social security number and filed taxes under my name. The thief then plugged in their bank account and had the $10,000 that the IRS owed me in prepaid taxes deposited into their account.

 

Not ideal – but even worse since we were under contract for 2 additional homes to add to our set of rental properties (remember our goal was to hit 5 rental properties by the end of the year).

 

Not only did the IRS deposit that huge chunk of money into a bank account that didn’t belong to me but because my tax accountant wasn’t legally allowed to give out paperwork to my lender during the identity theft process, my lender wasn’t able to process the loan paperwork for both of our homes. Unfortunately we didn’t find out that I had identity theft until after we submitted bids and went under contract on 2 different homes in the same week. This means that the $4000 in deposits, appraisals, and earnest money that we put down to acquire the properties went down the toilet. Ouch.

 

Compound all of that with the complication of traveling in Vietnam, South Korea and Japan trying to wake up at 2am and 4am in the morning (and getting a good enough internet connection) to call back to the east coast to make phone calls to my tax accountant, lender, and of course Diego to try to get this all straightened out. Traveling and handling business wasn’t too easy while traveling abroad.

 

Evicting a tenant:
Out of the several rental properties that Diego & I both own we haven’t had an issue with a tenant yet until now (thankfully and hopefully our luck continues after this) but it turns out that when someone is passive aggressive – it starts quite an uproar with the tenants.

 

We’re talking email chains that said tenant hates everyone in the house and doesn’t enjoy living there, threatening the other tenants, breaking the rules and bringing over animals for extended periods and also having ridiculously loud sex that begins to annoy the other roommates.

 

After getting a complaint that one of the other tenants felt unsafe we finally needed to jump in and start the eviction process. I distinctly remember having the conversation with our tenant holding the phone at least 1 foot away from my ear and then screaming at Diego and I after we told him he had to go. That conversation lasted well over an hour and it wasn’t pretty but after giving the tenant 2 weeks to move out their stuff – we were left with a room that didn’t have any damages and we just had to do some cleaning. Extra thanks and appreciation to Diego for handling most of the shenanigans that the tenant pulled on us. Here is Diego taking one for the team and cleaning the empty room for our new tenant to move in:

 

Evernote Camera Roll 20160128 195324
Love that guy.

 

Anyway after dealing with the issues we had with the tenant, we decided to update our lease. That lease now includes segments around:
  • Excessive noise from loud sex,
  • Leaving dishes around the house over a certain number of days,
  • Tenants wanting to break the lease agreement early.
  • Not being on our rent collection platform cozy
  • And mentioning we’ll submit all missed rent to a collection agency

 

It sounds ridiculous but I can’t make this stuff up.

 

That lease looks like this now:
https://docs.google.com/document/d/1p8lfyGqyu9ogxvl3ACxiB2x1meFXgiHmgMU7-kWM1pI/edit

 

And in case you were wondering, after discussing it with our remaining tenants, we concluded that the situation was unavoidable. It turns out when people are interviewing to move in they tend to be on their best behavior.

 

Occasionally dealing with rent payments:
This last quarter was both quite easy and brutal at the same time. For the most part, checks just flow into our account and we get paid. That’s pretty nice. Then, sometimes we get emails like this:

 

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And then we need to deal with it and figure out why we’re getting messages like this. Chasing rental money is never fun but thankfully in this case the tenant just wanted to reconfigure a different bank account to make payments.

 

I felt it necessary to point this out as owning a rental property is not all sunshine and rainbows and it’s not always just a machine where you put down a small sum of money in the form of a home and then automatically collect checks every month (although most of the time it does run pretty smoothly).

 

Quickbooks & Accounting:
And last but not least here are our final numbers for this quarter and the end of the year. I think Diego & I crushed it this year!

 

If you take a look at the numbers we had over $17,349.98 in net profit and we only put down roughly $76,000. The numbers might be a little off for our downpayment but if you do the math of $17,349.98/$76,000 = 19.70% Cash on Cash Return on our investment for the year. We also only got the first property at the end of march (meaning we’re missing 3 months of cash flow from our 1st property), and the second property we settled in the end of May (meaning we’re missing 5 months of cash flow from the 2nd property for the year).

 

If we take our last quarter in net profit (~$7,000) and multiply it by 4 quarters and then divided by our rough downpayment of $76,000 then we’d project a net profit of 36.84% Cash on Cash return for the year. That doesn’t even include our paying off the principal payment and including that in our equity calculations.

 

Forget the stock market. Our real estate hacks are where it’s at!

 

High five Diego!

 

Anyway here are our P&L’s along with our balance sheets:

 

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And now that this is a year end review, I can show you profit and loss for the year.

Screen Shot 2016-02-14 at 15.12.08

And again here is the cashflow for this last quarter & the balance sheet at the end of the year:
 Screen Shot 2016-02-14 at 15.12.33

 

This all does not take into account our tax preparation including depreciation expenses. If you have a great tax accountant that is very familiar in the real estate space I’d love an introduction (info@pascalwagner.com).

 

Conclusion:
This last quarter, our investing was hit hard. Our goal was to hit 5 properties by the end of the year, and low and behold – we’re still sitting on top of our original 2. When I sat down with Noah Kagan in Austin, he said something that feels so true.

 

“Making the money isn’t hard, it’s how to invest those large sums in your bank account which is much more difficult”

 

In the first month of January, I’ll be flying with Diego to Austin to stay with him for a week and check out all of our rentals, talk to our tenants, inspect the properties, schedule any repairs, and show any new open rooms.

 

As a side note, our next report should hopefully be coming in video form. We’ll be able to walk you through and actually show you the houses we’re looking at so that you can get a feel for the properties we’re earning our income from rather than just numbers and screenshots on paper.

 

And as always, here is a quick photo of Diego & I together at our housewarming party in Denver. Thanks for flying out to visit Diego!

 

IMG_1987

 

That’s all for now, but if you have any comments, questions or suggestions then definitely reach out to me at info@pascalwagner.com and I’ll share all the comments with Diego.

 

Thanks for all the support and keep up the hustle!
Pascal & Diego
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