Mrs. C. and I own 10 rental properties, including a 6 unit building. 4 of the 6 units in that building are short term rentals while the rest of our properties are long term rentals. This years was a challenging year for our rental business and depending on how one looks at it, it was both our best year and our worst year.
Why It’s The Best Year:
Total Revenue: The total revenue overall has increased significantly from last year. We have more total units online and for 2023 we had 4 units all year available for short term rentals. In 2022 we started with 1 unit in May, got the 2nd unit around mid June and the third unit around August. Having all 4 units going for the entirely of the summer was a big win. Our total revenue for all rental activities was around $140,000, with $68,000 from our 6 unit. In 2022 we had a total revenue of $93,000 with $33,000 coming from the 6 unit building. Net rental income for the year came in at $37,800 compared to just $6,200 in 2022.
Start of Section 8: Our original plan when we got into rental houses was to use the Section 8 program. We found quickly that there were plenty of people willing and able to rent our properties without having to deal with Section 8 bureaucracy, so we put it on the back burner. For one of our properties we found a Section 8 tenant and went through the process. Two issues with Section 8: First of all, they require repairs on stupid stuff that isn’t required by the city. My property passed the City rental inspection, but then Section 8 provided a laundry list of repairs. The most offensive of these to me is that they required me to paint the exterior of the detached garage. We had a potential tenant that was homeless, that they wouldn’t let move into the house because the detached garage has not been freshly painted. The inspector also did not care in the slightest about the delays he was causing. He was also dead wrong about some requirements. He told us a window in every room had to open, however the actual Section 8 guideline states that if there is a ceiling fan, this is not required. He ultimately waived this for our dining room, which has 100+ year old picture windows that likely haven’t opened since the 40s. The 2nd problem with Section 8 is you need to allow the tenant to move in prior to receiving payment. We received payment roughly 6 weeks after move in. Despite the annoyances of this, there are advantages to renting Section 8 and we will likely do more in the future.
Less Complaints Airbnb: While we did still have some negative reviews, the two major sources of negative reviews we had in 2022 are behind us. We had zero complaints of smoke smell and zero noise complaints. These complaints were driving us crazy in 2022 and we were at a point where it looked like this short term rental thing might not work.
Our property is a budget Airbnb apartment building. Everything is clearly described and the pictures are accurate and detailed. We have had several people ding us on location, which they chose. We had one person give us 1 star because there were no Ubers around. What we originally did was leave a review for all guests directly after checkout. In doing so, the guests were prompted to leave reviews. This encourages people who weren’t planning to leave a review anyways to leave one, which led to a lot of 3 and 4 star reviews. We now don’t leave a review for guests unless they cause substantial issues or leave a review for us first.
Acquisition: While we are buying houses at a much slower pace than when we started, we still acquired a house in 2023. We bought a 3 bedroom 1.5 bath brick house for $35,000. This was a great value and houses like this are getting much harder to come by.
Why This Was The Worst Year:
The major repairs and expenses for this year:
Property 6: In January our tenant contacted us the night before I was leaving to go to California about a creature in the attic. He had already reached out to Terminix to solve the problem. I was gone for 10 days and during that time period Terminix did not solve the problem. I ended up solving it by removing trees near the property and sealing up entrances for the creatures, as well as installing a sonar deterrent. We were charged $1,500 by Terminix for them to do virtually nothing.
Running total: $1,500
Property 5: Property 5 has just gone through a massive rehab at the end of 2022. We had a nightmare tenant who destroyed the property resulting in around $7,000 of direct costs and 3 months of down time for the house. We had to replace all the floors, cabinets, doors, and fill a 20 yard dumpster…it was really bad. Anyways the property was all fixed and we rented it out at the end of 2022 to a new tenant. In October the property needed half of the roof replaced at a cost of $7,000.
Running Total: $8,500
6 Unit: On the 6 unit property we finished the rehab on the final unit, which cost a total of $7,300. This included replacing the entire bathroom, all flooring, painting, and new appliances. We had foam insulation installed in between the units, which cost $7,500. In addition to paying for the service we also had to patch all the holes they put in the walls and the ceilings. This wasn’t very expensive, but took several weeks of work. We also replaced our first stackable washer and dryer, which was the small apartment style white ones with a top load washer. The new one we replaced it with is a front load washer and dryer and the highest capacity stackable on the market. This was $2,200.
Running Total: $25,500
Property 3: On property 3 we had a recurring issue with a clogged main line, which led to water backing up the basement drain, and the basement includes a finished bedroom and family room. We had paid for clearing out the main line 3 times, totaling $450. We then hired a company to scope the line, which cost another $250. They found a break that we were told was under the road, and the Township told us only one local company was authorized to do plumbing work under the road. We hired that company to fix the drain line at a cost of $5,800. What was really frustrating was that the line break was actually 3 feet into the yard from the road, and no road tear up was needed, so we potentially could have got this done cheaper.
Running Total: $32,000
Property 10: We purchased property 10 in April for $35,000 and spend roughly $6,000 on the rehab for it. I’m not counting that $6,000 against our income for expenses since it was necessary to make the property livable, but it was cash that got spent. We moved one of our tenants from property 2 into this one, which led to a cost of $1,100 for vacancy and light repairs to that house.
Running Total: $33,100
Property 7: Property 7 had a tenant move out last year who ran up a $1,400 water bill. That water bill hit our taxes this year. We also had to spend an additional $400 on random repairs to qualify the property for Section 8.
Running Total: $34,900
This was a total of $34,900 in large 1 time expenses. Sure, SOME of this stuff will happen, but statistically this was unusual. Spending around $5,000 to $10,000 on stuff like this would be much more common.
Other Cash Outlays:
Property 10: I already mentioned this, but we spent $41,000 on the acquisition of property #10. This was an all cash purchase, funded by our Heloc.
Property 9: Property 9 was purchased in 2022 and we have it listed for sale. We spent $35,000 buying the property in 2022 and it sat until we could work on it this spring. We spent another $21,000 on the rehab of this property, along with around $6,000 in total carrying costs. Due to delays in finishing the rehab we did not have the property listed until October, and we listed it about $20K too high. The property sat all winter and we just accepted an offer at the end of January. 2023 was the slowest year for home sales in 3 three decades. I am very hopeful that this sale goes through.
We have a $200,000 HELOC on our primary residence that we use for funding properties. We funded the down payment for our 6 unit building on the HELOC, which was around $55,000. We then put the rehab of the property on it, which was another $60,000. Property 9’s $56,000 is on the it, as well as property 10s $41,000. This adds up to $212,000. We have maintained it at just under the $200,000 mark, paying down some of this debt throughout the year.
In September of 2022 our Heloc was at 3%. It increased virtually every month to the 8.75% it is at today. $200,000 at 3% is a monthly debt service payment of $500. $200,000 at 8.75% is a monthly debt service payment of $1,458.
Once we sell Property 9 we will put all of that money down on the heloc, which should be around $100,000. I plan to use cash flow from operations to continue paying down the heloc and hope to end 2024 with under $60,000 remaining.
Tenant A: Tenant A was a boyfriend and girlfriend couple. The boyfriend had a domestic violence against the girlfriend and also had a pending court case for a felony. He knew he was going to jail, and she knew she could not afford the place on her own so decided to end her lease. We told them we would not charge a lease termination fee. Tenant was super concerned about the security deposit and we said we would expediate once she was officially out and we could do the walkthrough for damages. She left a dumpsters worth of trash behind, but the major issue was the exterior doors. The boyfriend had kicked in EVERY single exterior door when they were fighting. The frames were ruined and the doors all had massive dents on them. We had to replace all 3 doors, which even not charging for labor, was the majority of the security deposit. Boyfriend got super mad that we didn’t give him the opportunity to fix the doors himself or remove the trash, which he would have been able to do cheaper.
Tenant B: Tenant B was selected from about 20 applicants for a house we had open in January. He accepted the lease terms, but then kept trying to delay lease signing, he was waiting for a paycheck. (Red Flag 1). We should have moved down the list, and we did call the next qualified applicant who told us she was no longer interested in the property. We end up waiting 2 weeks and get this person in. Consistently late on rent and unprofessional communication.
AirBnB guests: One of the problems with our Airbnb is that 2 of the units are small and thus to be priced competitively, they have a low price. Low prices tend to attract low quality guests.
We had a guest who showed up with a Semi truck, and then got mad at us for telling him we had no where for him to park it. You would think you would contact a host if you need to park a semi.
We had a guest who arrived and parked a u-haul in our yard. They got combative when told that it was against township ordinances to park on the grass and we needed them to move it onto the actual driveway. They left a window open when they left, and had likely had it open the whole time, despite below freezing temperatures. They smoked in the unit, causing a lot of extra work to get rid of the smell.
We did also have many wonderful guests. We had 3 long term guests during the outage season at our local nuclear plant and all of them treated our property well.
Looking to 2024:
For 2024 we hope many of the negatives will fall away. 2024 should be a more profitable year than 2023 and we are building towards our rental income being able to cover all of our expenses, which should occur by 2026. Major plans include combining the 2 smaller airbnb units and turning 1 of the 2 long term units into a short term unit. We are looking to start selling off our properties in Benton Harbor city, and will likely sell at least 1 in 2024. We are not planning on acquiring any properties that require rehabs in 2024.