Chingo De Dinero

I started investing in rental property about 3.5 years ago, and now need to do a recap/lessons learned. When I originally did my calculation, I was looking at around 25% yearly return. I used a basic IRR calculation in excel. My key variables were rental rate growth, home appreciation, and repair expenses. The current rent rate and home value was given.

The first variable rental rate growth, I actually underestimated. I used 3%, but it actually grow around 10% each year. I don’t think that can happen forever, but I guess I just got lucky and bought in at the low.

For home appreciation, I used 3% as well, but in reality it was around 12% per year. There is probably a relation between the rental rate and home value.

The last variable, repair cost I used 50, but in reality, it should be around 125. For a few of the condos, it was very low, mainly due to who is living there. But, you get on AC out, or a few appliances and the repair budget is gone. I have two properties that have expended their budget for the next few years, but all in all, it should probably be around 125, not the 50 I used. Also, it is important to note that I do the majority of repairs myself. If you hire someone for everything, you are looking at 200 per month.

One thing I did not factor right was % of time rented. I worked very hard to have little down time. For 7 units, I would have less than 7 days of a unit not being rented (average 1 per unit). This was not factored in, but was very small. It is easy to have 15 or so unrented days a year per unit if you do not manage the unit tightly. This makes a very big difference in return.

After all of this, I would say my return on investment was over 100% per year. I think I had very good timing, and it is time to take the exit. Plus, with travel, the repair cost increase even higher.

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