My Rental Portfolio Deep Dive: Property 1 of 12
This was my first house! After graduating college, I accepted a job offer to work for Principal Financial Group in Des Moines. EVERYONE, and I mean EVERYONE told me I’d be crazy to buy a house in a city I never lived in, didn’t know the neighborhoods, etc. But as I often do, I did it anyway. The government was offering a $8,000 first time home buyers tax credit, so it really seemed like a no brainer to me.
Often times people tell me they were reluctant to buy a house for this same reason — they’re moving somewhere new and don’t know the best areas, or feel like buying a house will make them “stuck.” But.. those people are usually telling me this while saying, “I wish I would have bought a house.” I’m here to tell you that the internet makes it super, super easy to research neighborhoods and areas. If you decide to use a real estate agent, find someone who has lived in the area for a very long time and can give you their opinions on different neighborhoods. Trust me, you won’t be stuck. You are also “stuck” if you sign a 12-month lease! Not to mention, the complex may raise your rent, randomly decide to do “maintenance”, your neighbor that you’re sharing a wall with may be super loud, etc. While there are certainly risks to purchasing a home, there are also LOT of risks to renting.
OK, anyway. Off my soap box. I bought this house for $123,000. There were also some seller concessions but to be honest, I don’t remember what they were anymore. 🙂 My boyfriend at the time and I lived in this house for ~3 years, and then I turned it into a rental. The first couple of tenants I had were great. My mortgage payment was around $600, and I was getting $1,000 for rent. I paid off the mortgage completely around 2017, and by then the rent was $1,200. Straight cash flow into my bank account, I thought it was great!
Between 2016-2018, I lived in a couple different states so I wasn’t around to keep an eye on the property. I briefly lived in Des Moines again in 2019, but then left for good. I actually spent 2019 in London, so… I was VERY far away. 🙂 This is where I learned a very important lesson. It’s really easy as an absentee landlord to just not think about your properties. If they’re sending the rent check every month, who cares? Surely they are not ignoring maintenance issues and scumming up the property too bad, right? Well, in the case of this house, I was wrong.
Fast forward to early 2024. I bought a piece of land that I plan to build my dream house on. The plan was to start building this year, and in order to do so, I needed to liquidate some of my assets. I decided to completely get out of the Des Moines rental market, since I don’t know many people there anymore that can help with the properties. Relying 100% on contractors is tough. Well, I reached out to one of the “We Buy Houses” companies and they went and took a look at the property… and send me these pictures…..
OOOOOOF. These photos should give you a good idea of the condition of the house. I was very taken aback, and honestly, very angry at the current tenants, but moreso myself. You know when people say, “I let myself go” and then they gain weight or whatnot? Well… I basically had “let this property go.” I knew deep down it likely wasn’t being taken care of — when you haven’t heard a peep from your tenants in YEARS… that’s actually a bad sign that they are not telling you about issues likely because they don’t want you to see their mess.
At this point, I had a couple of options.
1) Set it on fire.
2) Give the tenants 60 day notice (who were month to month anyway) and rehab and re-rent
3) Give the tenants 60 day notice and rehab and sell on market
4) Give the tenants 60 day notice and sell as-is
Obviously, I’m joking about #1. If I had lived in the area, and/or had good relationships with contractors, I probably would have done #2 or #3. But, not only did I not have any contacts, I also was going through a lot in my personal life and did not feel like I could mentally take on managing a rehab from Tennessee. So, I decided to sell as-is. Luckily, I found a really great family who wanted to rehab it and we negotiated a deal FSBO. It went fairly smooth, and I’m excited to see what they do with the property.
Finances
Purchase price: $122,500 in 2010 (Net was probably closer to $118K after seller concessions, but I don’t recall what they were.)
Sale price: $122,500 in 2024. Note: Market value for this property at the time of sale, should it have been rehabbed and in good condition, was around $225,000. I estimated $50K-$60K repairs, so I knew I was leaving some money on the table.
Total rental income: $145,200 (11 years at an average of $1,100/month.)
Major repairs/renovations completed: I did not do much to this property. I bought a new fridge ($1,000), new washer and dryer ($2,000), I did some waterproofing in the basement $3,500), I put up drywall in the basement ($2,000), and I did some very minor work in the basement bathroom ($1,000.) In total, I estimate $20,000 in repairs and improvements over the years.
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 calculate that I will owe approx. $10,000 in uncaptured depreciation and capital gains tax.
Total proceeds after closing costs and taxes: $115,000.
Takeaways and Lessons Learned
Overall, I am happy with the end result. It does hurt to essentially sell the property for the price I bought it for 14 years ago, but, I ultimately received more than that in total rents, got the $8,000 first time home buyers tax credit, and never had to make any big repairs. Same roof, same HVAC, same original wooden windows as when I bought it. That said, would I have done things differently? Absolutely. Like everything in life, you make mistakes, and hopefully you learn from them. I will never ignore or put properties “out of sight, out of mind.” If I haven’t heard from a tenant, I check in. I walk through quarterly. I have stricter tenant qualifications for gross income and credit. These are just a few examples.
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)
