Yo, yo! Good morning, peeps!
I just got my annual profit and loss statement for our rental duplex, and thought I’d share last year‘s results with you.
**Spoiler alert**… After all calculations, we made only $89 in cash flow + loan paydown, but the property appreciated about $46k last year. In total, our ROI was about 42% for 2021.
Every year around tax time I do a full property review, calculate the ROI, and note down all the good and bad stuff that happened through the year at the property. I recommend this annual review practice to anyone who owns a rental (even though it’s boring, keeping good notes is always helpful later in life!).
Anyway, here’s what the P&L Statement shows for 2021…
**There are 2 misleading things about this statement… The first is that it doesn’t include our mortgage, annual taxes, or insurance. So I’ll calculate all that stuff separately. The other thing is the $16,000 “other expense” I circled in blue, which I’ll explain in a bit…**
INCOME: In 2021, we had 100% occupancy and 100% rent collection. Every investor’s dream! This duplex rents for $1,975 per month (for both sides total), so that adds up to $23,700 for the year.
Also, we got an unexpected $1,100 from an outstanding rent settlement back in 2018. So our total income was $24,800.
EXPENSES: We had pretty mammoth expenses this year… Mostly due to the new roof (insurance paid for most of it) and a new A/C unit. Here are the biggest expense categories listed on the P&L statement:
- Management fees: We pay our property management company 7% of all collected rent. Seems like a lot, but it’s actually a really good deal compared with the average property management fee countrywide.
- Commissions: Our property manager collects a renewal fee when our tenants renew their leases. This is one-quarter of 1 month’s rent. (If a tenant leaves and they have to find a new one, they charge a little more, I believe half of 1 month’s rent.)
- General repairs and maintenance: This is mostly toilets, sinks, doors, appliance repairs here and there, etc.
- Capital expenses: There were 2 large capital expenses this year, which were the new roof ($11,000) and new A/C unit ($4,800).
- Landscaping: Seems like a lot, but it works out to be less than $15 per week. The lawn company comes every 1-2 weeks depending on the season and mows the front and back lawns.
- A/C and plumbing: Before getting the new A/C unit, we had a couple annoying repairs, and the plumbing issue was a bathtub that was draining really slow.
OTHER EXPENSE: There’s a line item for “owner contribution” on the form. This isn’t actually an expense – these are funds that I transferred to my property manager to pay for the A/C unit and roof bills. They shouldn’t be counted as ‘income’ and need to be removed from the statement total.
Another thing that’s not noted here is the insurance refund check that I got paid as reimbursement for my roof claim. It’s missing from the P&L statement because it was sent to me, not my prop manager.
So here is the *actual* profit and loss for the year:
$24,800 – Income
(-$22,145) – Expenses
$8,690 – Insurance reimbursement
Side note, this is why I encourage investors to thoroughly comb through statements and cross check all their numbers. If I wasn’t paying attention, at first glance it would seem like we made a $18k profit this year… But the real number is actually a lot lower.
OK, moving on… Now let’s look at the other 3 big things that I pay separately for this property. These are taxes, insurance, and mortgage interest.
PITI: Principal, Interest, Taxes, and Insurance
Here are the things my property manager doesn’t pay for, so they’re not included on our annual P&L statement:
Mortgage payments: $7,938.60 in total
- $2,949.99 was principal
- $4,988.61 was interest
Property tax: $5,206.89
Since the mortgage principal isn’t technically an “expense” (this is how much our loan balance has been reduced by) I’ll need to remove that portion from our overall expense tally.
Total (without principal paydown): -$11,256.50
OK, now let’s add this all up and see what the *real* total profit was for 2021…
Welp, all in all, this duplex made me and my wife about 89 bucks last year – before appreciation. Whomp whooooomp. 😭
As a comparison, here is my full review from 2020… That year we made $7,497 in profit.
When I think about what went wrong in 2021 compared with 2020, I can pretty much sum it up to 2 major events:
- In April 2021 we had a huge hail storm. This resulted in us needing a new roof. Since our insurance paid for a replacement, we were only responsible for the $2,300 deductible.
- In September one of the A/C units blew up. This cost $5,000 for a new unit with installation and 10-year warranty.
If those 2 things didn’t happen, I’d almost have a repeat performance of the prior year. Funny how it only takes a couple things to go wrong for all of your cashflow to be wiped out for the entire year.
Our Saving Grace: Appreciation
I wrote about this a couple months ago… We ordered an appraisal of the duplex, which showed a new valuation of $266,225 (as opposed to 12 months earlier at $220,000).
So even though we had a neutral-ish year for income minus expenses, we still gained $46,225 last year from property appreciation.
Total ROI for 2021
To work out the total ROI for 2021, I’ll take the income gains ($89) and add them to the appreciation gain ($46,225), then divide this by the equity I held at the start of 2021 ($110,950).
($46,314 / $110,950) = 0.417. So, that’s about a 42% ROI.
Pretty ridiculous how leverage works in your favor and can supercharge your ROI. When I bought this place originally in 2015, cash flow was my main goal. But I realize now the power of appreciation if you can choose a good location.
Anyone else out there do nerdy annual reviews for their rentals? Care to share your stuff from the past year?
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Unfortunate hailstorm, Did you guys have reserves in place or was the damage just too much?
Glad you guys were able to come out in the end though.
Hey! Yep, we have a healthy reserve account for emergencies like this. In this case the insurance company were able to send most of the $$ to us within a couple weeks, and luckily there was no leaking from the roof so we didn’t need to replace it right away.
Nice note-taking! I’ve been contemplating a rental and will refer back to this if I ever do. Are you comfortable sharing your cumulative ROI on the place since 2015? Interested but no pressure!