2019 Homes Performance - Earnings & Expenses
Hello Friends,
I finished all these calculations back in April (for taxes) and have been excited to share them with you!
Why do I share these?
I share in an effort to show transparency on Real Estate & Airbnb Investments. I often see investors brag about all that can be made, which is substantial even in less desired locations like some of my homes are in, and yet they leave out the high expenses required to run such a business.
What I appreciate is that these 6 properties (3 with partial ownership), allow me to be Financially Independent, which I define as earning more from my assets than I spend to live. Of course, this is partially because I live frugally. In 2019, I personally earned $40,956 in profits from the homes, up $4,000 from the previous year.
What’s New?
Where’s your Principal Paydown?
A partner that I share ownership of two homes with, pointed out that I should include Principal Paydown in my expenses as it is something paid out, I didn’t last year because in my bookkeeping software it gets swept away in “Owner Equity” and doesn’t show up in my expense reports.
Some people calculate Principal Paydown as earnings because it is money kept, but I chose not to do that.
Covid
The travel industry was hit hard in March and I had to pivot all my homes to month to month rentals. Ever since I put together the 2018 numbers, I had been wondering if my homes would earn higher profits rented furnished, month to month; this has forced me to find out! Of course these numbers won’t show on this report, we’ll have to wait until the 2020 report.
For some reason, I was super intimidated by the idea of managing the out of state homes month to month. Partially because of the need for showings, writing leases, etc. Social distancing showed me everything can be done afar, online or over the phone. I am super grateful to conquer this limiting story.
With some quick, back of the napkin numbers, I predict I will make a hair less in 2020 as I did in 2019, if I continue to rent medium term. This is with far less time required for the management. When travel returns, I will likely do a mix of renting short term in the high season of Summer and renting medium term through the slower seasons. Let’s see. What I appreciate about the new pace is that I have way less moving parts, less demands on my time and less work to do. So much so that I was able to cut expenses even further, letting go of some independent contractors and receptionists services. Some of those expenses are not reflected here as they are more of a general management business expense, but they were considerable.
*SpreadSheet: https://docs.google.com/spreadsheets/d/1ss6eSVDAM5_pfMFFr8vIwjGYPGRH0iF-WmSuulUpR1E/edit?usp=sharing
Let’s Dive Into The Properties Individually
Condo
Nice bump here over last year, nearly 8K more in profit. High demand & earnings in Summer, low expenses since it is paid off. I’m excited to see it making at least a 10% return, that is my ideal minimum for all my places and yet it can be harder to achieve in an expensive Real Estate Market.
Little Wins: I have a love/hate relationship with condos. I am so lucky that this one has a great HOA and the utilities + capital expenses (furnace, water heater, roof) because they are shared. In my 5 years of ownership, I have been fortunate enough to have little to no maintenance to do there. In 2019, I replaced the kitchen faucet.
6507
Less than 1,000 more in profit over last year. This home is over 100 years old and requires a lot of maintenance. In 2019, we refinished the deck, replaced the roof, did some AC/furnace work, fixed some drywall/ water damage in the bathroom, oh and we removed a tree. Damn! Note to self, don’t buy homes over 50 years old. I put on 40 year shingles, so we’re probably in it for the long haul together.
Little Wins: Higher earnings from renting as a single unit, instead of by room.
6525
This home earned less and had more expenses (also over 100 years) resulting in 6K less in profits. We did serious tree trimming & yard maintenance (+1 removal), replaced the shower surround, repaired water damage, fixed a saggy ceiling, caught a squirrel in the bathroom, started animal control proceedings to get squirrels out of the roof, and repaired the roof. Woof!
Little Wins: n/a
Vernon
Earned a little less, but still squeaked out 2K more in profit. We replaced the fence (rotting wood and fell down in the back), fixed the concrete patio, and replaced the dryer. This home is from the 1950, much less maintenance.
Little Wins: This year, I paid off the private loan to my co-owner!
Morganford
In 2019 we got hit with another big expense: a retaining wall. Who new those were a thing?! Well probably lots of people but I don’t remember it coming up on the inspection report, so it was news to me. The previous owners put some BS gardening bricks which were absolutely not holding the soil in place. To keep the home from sliding off the hill, we had to spend over $5000 on a retaining wall. That ate our profits, sheesh.
Little Wins: This year (2020) I learned the size and location of this home makes it perfect for Traveling Nurses, I found its niche so hopefully it will show more profit in 2020!
San Miguel
This home earned 5K more in profit than the past year, but it was partially from more rental months as we had purchased in March of 2018. This year we spent quite a bit to figure out a mysterious “cat pee” smell and after nearly a year of wasted inspections, we learned it just needed a new water heater. We xeriscaped and mulched the yard thinking it would be much cheaper than maintaining grass, but I learned that this landscaping needs tons of weeding done and it ends up costing over $100 every 3-4 weeks to maintain.
Little Wins: In 2019 I discovered the Home Insurance was more expensive since it was under owner occupied instead of rental (mistake from my co-owner). It was annoying at the time, but the new insurance payment is much lower now. I also paid off the loan to my co-owner, so the personal loan interest will not be in the next year’s report.
Looking ahead to 2020 and beyond.
In 2020, Ben & I purchased a home to house hack with a combo of Airbnb and Petsitting, and yet we haven’t had an opportunity to do it yet this year with Covid.
I replaced the furnace at 6507 to a high efficiency one, so I’m hopeful that will bring expenses down.
I stopped advertising the homes on Booking.com. I found it to be more hassle than it was worth. High fraud, lots of fees, and difficult customer service.
I am eyeing out of state turn-key, long term rentals to purchase that will support my Nephew’s education. They are 2 years old and 2 months old.
Conclusion
I hope you have found this report helpful, I think it is important to see some of the true (high) costs of operating a bnb. I’m super curious how next year’s report will look with lower cleaning, management and software expenses.
*Metrics Explained
Advertising: This is the commission Booking.com and Homeaway charge for listing on their website. Airbnb takes the cut out before paying us so it is not shown as an expense.
Property Management Fees: I pay our head cleaner in St. Louis a little extra each month to make sure the trash cans go out, respond to on the ground emergencies, schedule and train other cleaners, plant some flowers, and replace small items (like a few bowls here and there) etc. It’s actually quite a bargain.
Replacements: These are the often bought or “replaced” items like: shampoo, trash bags, laundry soap and more.
Furnishings: These are larger, less often replaced items like a couch, furniture, and the initial set up.
Travel: 4 of the homes are in St. Louis so I try to make it out there every year and a half for a long week of full time improvements and organizing. I planned to be there this May, but that got derailed, not sure when I will be able to make it out. Feels overdue. I visited the Colorado Springs home last year so this includes gas.
Meals & Entertainment: When I work on the homes, I am able to write off my groceries, meals, and some entertainment or “research”, as I usually add in fun finds to my House Manual Recommendations!
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