My Rental Portfolio Deep Dive: Property 2 of 12
Awww. At one point, I thought for sure this house was my forever house. Five bedrooms, three and a half bathrooms, in a neighborhood surrounded by houses I used to dream of. I moved in with my then boyfriend and we quickly realized not only did we not need 3,200 sq. feet, we also didn’t need each other. 🙂
We bought this house for $292,000 in 2013. We put 20% down. When my boyfriend and I broke up and went our separate ways, I had to buy him out of his down payment, and eventually I had to re-finance to get him off of the mortgage and deed. I actually had to re-finance at a higher rate, but still ended up with 3.875% so I can’t complain too much. However, I learned a very important lesson. Never, ever will I buy property with someone that I’m not married to.
For awhile, I lived in the house and rented out the basement to one of my friends. About a year later, though, I moved in with my new boyfriend so I turned it into a full-time rental. That was sometime in 2015. For the next nine years, I only had two tenants, both families that took great care of the home. I never had any major issues or repairs, but did put in a new hot water heater, replaced all of the toilets, some of the ceiling fans, had some of the flooring replaced between tenants, and of course landscaping along the way.
My mortgage payment was around $1,500 and I averaged $2,350/month in rent. By the time I sold the property, the market rent was definitely closer to $2,600/month, but my last tenants were long term since 2017. As long as tenants are paying rent in time and taking good care of the property, I rarely increase rent unless I have a substantial increase in costs from something like a property tax increase. In 2023, my current tenants approached me about purchasing the home. They were especially interested because one of their family members passed away during their tenancy.
I ran my own comparables and we agreed to a purchase price of $400,000 as-is. While I do believe I could have gotten a fair amount more listing on the market, realtor fees at that price point would have eaten about $24,000 and I would have likely had to make concessions after the inspection phase. I hired a real estate attorney to handle the transaction for $595 flat and it was an easy peasy transaction. I was set to make $210,000 after the sale so I decided to do a 1031 exchange. I am currently in the process of identifying properties. I’m under contract on one but haven’t been able to get any others yet.
Finances
Purchase price: $292,000 in 2013.
Sale price: $400,000 in 2024.
Total rental income: $253,800 (9 years at an average of $2,350/month.)
Major repairs/renovations completed: New water heater, new ceiling fans, some flooring, new toilets, landscaping.
Taxes owed: When you have a rental property, you are able to depreciate the property on your taxes. This makes your tax liability year to year very low, sometimes $0. In fact, most years I did not show any income from this property after deductions and depreciation. However, now that it is sold, I have to pay taxes on the recapture of depreciation. Don’t worry, I plan to make an entire blog post in the future about how depreciation and the re-capture of depreciation works! So here is your nudge to subscribe now. I calculated that I would owe approx. $50,000 in capital gains taxes, which is why I decided to do a 1031 exchange.
Total proceeds after closing costs and taxes: $210,000.
Takeaways and Lessons Learned
Overall, I am happy with the end result. The tenants (and now new owners!) were also really happy about it, so that makes me feel good. I do think that the property had room to appreciate even more in the coming years, and it did hurt to sell a property with such a low interest rate. But, myy goal is to be able to use the proceeds to ultimately net more rental income than what I was with that property, but we’ll see what happens. I’ll definitely make another post once I have used my 1031 funds and have those properties rented out.
I hope you enjoyed this post! If you did, you’re in luck because there will be 11 more in the series. 🙂 Be sure to follow me on Instagram (@millionairemomteam) and TikTok (@millionairemomteam)
