When managed correctly, owning a rental property can be a great source of secondary income. But there are tons of options when looking for areas to invest in, and owning property isn't completely passive, so I need to make sure that I'm actually getting a good return on my money. When looking at long-term investments, a year is really a short time period, but I have a good set of data, and a decent idea of the actual expenses for this property, so I can better project the income and expenses going forward.
Through my first year as a landlord, I've lost both of my original tenants, found new tenants who were willing to pay $100 more each month in rent, fixed and replaced various appliances, and built a small cash reserve for future repairs and updates.
In order to purchase my first rental property, a duplex, I needed just shy of $48,000. After 12 months, my total expenses are $19,226 and my total gross income is $24,659 which leaves me with a net profit of $5,433. Alone, that would only be a return of just over 11%. Honestly, that wouldn't be worth the extra effort of being a landlord and managing the property. While many haven't fully recovered from the coronavirus pandemic, there are real estate stocks that you can find that would provide an 11% annual return in a dividend and require no more than 4 hours a year joining an earnings call.
But, when we look at other factors that add value, like appreciation, and loan down payment, the return gets much better. Total appreciation for my first property is around $1,487, taking the average value from several real estate websites and looking at similar buildings that have sold in the past year. The total loan pay down amounted to $2,083 as well, which is nice, since it didn't involve any of my own money.
When added to the cash return of $5,433, we get a total annual return of $9,003. That comes out to an annual return of 18.7%. Much better, and I'm not sure I'd ever be able to find a stock I trust with an annual return north of 18%. After one year as a landlord, I feel like I have a good handle on what I'm looking for in my next property, and how exactly I can go about providing my tenants with a high quality home, while providing enough of a return to make it worth my time.
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