What I make every month on my rental property
Think real estate investing is your path to financial freedom?
Then you might want to read up on ALL the expenses that come into owning a home.
In this post I’m going to breakdown
what I earn each month on my rental property
what I spend each month on the property
factor in the one-time costs
go over my plans for future rental value and expenses
The house
My rental unit is a new construction townhome in the Charlotte area. New construction properties have a one-year warranty for just about every kind of issue you could run into, so I had no out-of-pocket costs this year for the problems that came up (water leak, bubbling paint, etc.).
It’s an end-unit, three bedroom, 2.5 bath smart-home with an office and laundry room. It has vaulted ceilings and a detached, one-car garage. At the time of publishing this article, we are 6 months into its first rental lease.
The rent
I purchased the house in March 2020 (right when COVID lockdowns were starting), which definitely had a negative impact on the rental prices in my neighborhood. Several of my neighbors/fellow real estate investors panicked and cut prices, forcing the rest of us to follow their lead in order to stay competitive.
Ultimately, the cost came down to $2,100 per month in rent and a $300 non-refundable pet fee. I also received a $2,100 security deposit, which, of course, I can’t touch.
Pre-COVID, the expected rental rate for my property was $2,400 per month, so I should have earned $3,600 more this year than I did. I chose instead to cut prices in order to:
be competitive with my neighbors who had begun pricing lower due to the pandemic
get it rented quickly, as I had already lost three or four months getting appliances (shipping slowed due to COVID), dealing with warranty issues, and learning about the rental process (ultimately hiring my real estate agent to rent the place for me so I could continue working full-time instead of showing the house)
attract a tenant who, with the lower price, would hopefully be able to keep paying rent through the pandemic
The costs
Agent Fees
I ended up hiring a real estate agent to help me:
get the house rented quickly by being available for showings
post in the NMLS to attract more potential applicants
negotiate rental price
review credit reports
write the lease with addendums
do the walk-through when they moved in
I had started off trying to do this on my own, but couldn’t meet with people when they were available due to my heavy work schedule. I also was, admittedly, somewhat scared to meet people alone in an empty house as a 24 year old female.
This cost me half of one month’s rent ($1,050), plus a $300 finder fee, for a total of $1,350.
| Income | Expenses |
|---|---|
| $25,200 (rent for the year) | $1,050 (agent fees) |
| $300 (one time pet fee) | $300 (finder fee) |
| TOTAL INCOME: $25,500 | TOTAL EXPENSES: $1,350 |
| ANNUAL TOTAL PROFIT: $24,150 | |
| MONTHLY TOTAL PROFIT: $2,012.50 | |
Appliances
The house didn’t come with a fridge, washer, or dryer, so those needed to be purchased. Since the home was brand new, I chose brand new, high-tech appliances to match the “newness” of the smart-home.
Since the stock market was going crazy, I chose to buy the appliances on a credit card and take advantage of a balance transfer offer so I could invest the cash instead. This ended up working out really well for me as I earned around $10,000 on the stock market at a 45-50% overall return and was able to buy another property just 9 months after closing on my rental.
The 0% interest balance transfer on my credit card lasts for 18 months and I currently pay $288 per month to pay it off in time with a little breathing room before the 0% interest promotion period ends. I did temporarily drop that payment amount to just the minimum in order to rebuild my cash reserves after purchasing my second home in December 2020.
There was a 3% fee on the original balance of the appliances for the balance transfer, which was:
$4,240 original balance * .03 balance transfer fee = $127.20 total fee
$4,367.2 beginning appliance balance (fee included)
With a balance of $3,060.92 remaining, the payments I have made so far are $1,306.28.
Paying it off at $288 per month means it will be paid in 10.6 months - before the promotion ends - so we’ll assume that I pay at that rate for the remainder of the lease. Bringing my expected costs for the remainder of the lease to:
$288 per month * 6 months = $1,728 total
Making my expected total cost for the year on appliances equal to:
$1,306.28 previous payments
$1,728 future payments
$127.20 fees
TOTAL APPLIANCE COSTS ACROSS 1 YEAR LEASE: $3,161.48
Bringing the tally up so far to:
| Income | Expenses |
|---|---|
| $25,200 (rent for the year) | $1,050 (agent fees) |
| $300 (one time pet fee) | $300 (finder fee) |
| $3161.48 (appliances) | |
| TOTAL INCOME: $25,500 | TOTAL EXPENSES: $4,511.48 |
| ANNUAL TOTAL PROFIT: $20,988.52 | |
| MONTHLY TOTAL PROFIT: $1,749.04 | |
Mortgage, HOA, Utilities
Now for the big costs - the mortgage, property tax, insurance, HOA (which includes trash service), and utilities (I pay the water on my rental unit, while the tenant pays electricity and gas).
Mortgage
Principal: $300.39
Interest on $198,498.35 balance at 3.99%: $660.01
Property taxes and insurance: $182.71
TOTAL (monthly): $1,143.11
HOA
TOTAL (monthly): $155.25
Utilities
Water
Average of the last 4 water bills: $48.52
Convenience fee: $3.95
The utility company I go through only has the option to do mail-in check payments or credit card payments (which charges a flat $3.95 fee). Unfortunately, the window to pay your bill from the date you are notified of the bill is 15 days, if you miss that window, you get charged an extra $15 dollars. So while paying the fee is annoying, it’s worth it for me.
TOTAL (monthly): $52.47
Bringing the overall annual total to:
| Income | Expenses |
|---|---|
| $25,200 (rent for the year) | $1,050 (agent fees) |
| $300 (one time pet fee) | $300 (finder fee) |
| $3161.48 (appliances) | |
| $13,717.32 (mortgage) | |
| $1,863 (HOA) | |
| $629.64 (water) | |
| TOTAL INCOME: $25,500 | TOTAL EXPENSES: $20,721.44 |
| TOTAL PROFIT: $4,778.56 | |
| MONTHLY TOTAL PROFIT: $398.21 | |
Move-out costs and repairs
It’s much cheaper to keep a tenant for as long as possible and avoid repair costs - but, for the sake of crunching numbers, let’s assume my tenant will move out at the end of the lease.
I am hoping to use the $300 non-refundable pet fee for any cleaning costs/repairs necessary. It will be outside of my 1 year warranty, so most repairs will become my responsibility.
I have also already spent some small change on tools and paint for the property ($20 or less) before the tenants moved in, so we’ll add that into this category of repairs, cleaning fees and supplies.
| Income | Expenses |
|---|---|
| $25,200 (rent for the year) | $1,050 (agent fees) |
| $300 (one time pet fee) | $300 (finder fee) |
| $3161.48 (appliances) | |
| $13,717.32 (mortgage) | |
| $1,863 (HOA) | |
| $629.64 (water) | |
| $320 (repairs, cleaning, misc.) | |
| TOTAL INCOME: $25,500 | TOTAL EXPENSES: $21,041.44 |
| ANNUAL TOTAL PROFIT: $4,458.56 | |
| MONTHLY TOTAL PROFIT: $371.55 | |
NOTE: I counted the $300.39 principal payment on my mortgage as an “expense” since I have to pay it every month - but it is equity in the property and more like “saving”. If you want to count it that way instead, it brings the total monthly profit to $671.94 for an annual profit of $7,863.24.
Other costs to keep in mind
After the tenants move out and the property has been cleaned, not only do I lose the rent ($1,050 if it sits empty for half a month), but I also have to continue paying the mortgage, HOA, and ALL the utility bills, instead of just the water bill, while I find another tenant.
As the property gets older, repairs and upgrades will become more expensive. It is my hope that no other major repairs come up after the warranty period and that, since it is a new build with brand new appliances, it won’t need any modernizing for a decade or more.
Annual Rental Property Costs in USD
The future
Next year
The appliances will be paid off by October 2021 and the rent will return to its original, expected price of $2,400 per month pre-pandemic. This means that I can expect to earn the following:
| Income | Expenses |
|---|---|
| $28,800 (rent for the year) | $1,050 (agent fees) |
| $300 (one time pet fee) | $300 (finder fee) |
| $13,717.32 (mortgage) | |
| $1,863 (HOA) | |
| $629.64 (water) | |
| $320 (repairs, cleaning, misc.) | |
| TOTAL INCOME: $29,100 | TOTAL EXPENSES: $17,879.96 |
| ANNUAL TOTAL PROFIT: $11,220.04 | |
| MONTHLY TOTAL PROFIT: $935.00 | |
20-30 years (paid-off house)
One day the house will be paid off, leaving just property taxes and insurance worth $182.71 per month or $2,192.51 per year.
Now, this next breakdown is a little unrealistic, because by the time the house is paid off, I’ll likely need to do heavier repairs and upgrades. Rent would be higher a decade from now, but so, too, would HOA and property tax.
| Income | Expenses |
|---|---|
| $28,800 (rent for the year) | $1,050 (agent fees) |
| $300 (one time pet fee) | $300 (finder fee) |
| $2,192.51 (taxes and insurance) | |
| $1,863 (HOA) | |
| $629.64 (water) | |
| $320 (repairs, cleaning, misc.) | |
| TOTAL INCOME: $29,100 | TOTAL EXPENSES: $6,355.15 |
| ANNUAL TOTAL PROFIT: $22,744.85 | |
| MONTHLY TOTAL PROFIT: $1,895.40 | |
Final considerations & earning more
These costs are highly variables. I can lower the
agent fees by…
offering less of a finder fee (currently $300, but can be as low as $100)
choosing a different firm to rent my property through that charges less
handling the showings myself, eliminating that cost altogether
water bill by…
NOT including it in rent and having the renter pay it alongside their electricity and gas bill, removing that cost from myself entirely
mailing in payments to save $3.95 per month or $47.40 per year
repair bills by…
becoming more handy and doing the repairs and upgrades myself
Over time, rent, property taxes, HOA, and repairs will all go up in cost. These final numbers are estimates and likely to be somewhat off, though the overall trend of earning more as the home is paid off and rents rise will hold true.
Appreciation
Finally, consider this number:
My property is appreciating in value at 10.8% per year (according to Zillow market reports). In fact, since buying it 9 months ago, it has gone up roughly $27,865 in value.
If the house went up in value consistently at that amount and it was paid off, I would earn a profit of over $50,000 a year between appreciation and rental income.
Don’t forget though - if I wanted to sell the house, I’d have to pay 6% in real estate agent fees and 2-4% in closing costs and other fees that inevitably come up while selling a home.
All these costs can be a lot to keep track of… but as you can see, the payoff is worth it! I hope that these numbers take the mystery out of rental ownership costs and what YOU can expect to earn.
I’ll be posting updates on this property with the true move-out costs in August when my tenants (potentially) move out and any other maintenance fees I learn about as time goes on (yearly pest control, for example).
I’ll keep sharing facts and REAL LIFE numbers here on this blog so that you can be better prepared when YOU decide to invest!