Wednesday, March 20, 2013

My Secret Weapon

No...It's not a death-ray.  Nor is it a Derringer pistol up my sleeve. 

It's rental real-estate free cash flow.


Frankly, some months are harder than others when it comes to paying an additional $3,400.00 towards my rental real-estate mortgage payoff.  This month alone was full of budget-busting surprises.  Seriously, when it rains, it pours:

The truck blew a pump and took out my serpentine belt with it.  Potential repair expense: $500.00  My buddy and I worked two hours and spent $150.00 to repair.  We also took him and his wife out to lunch and spent another $50.00 for the four of us.  Savings: ~$300.00

Our paid off 2009 Altima with 64k miles needed an air conditioning compressor and a driver's side electric window motor replaced.  Total estimated cost: $1,328.00  Fortunately, I bought a 100k extended warranty for about $1,000.00 when I purchased the car.  That turned out to be a great purchase.  It included a "disappearing deductible".  My total out-of -pocket cost for those repairs: $0.00  Whew!

My rental management company emailed saying a fence needed repairs at one of my properties.  Contractor Estimate: $650.00  Again, because I had some spare time available, my buddy and I fixed it for the price of materials and a nice meal.  Total cost: $278.11  Savings: ~371.89

I had another rental house that needed some rotten wood replaced as well as some paint scraped and touched up.  I didn't bother with an estimate...Hey, I was on a money-saving roll and simply took care of it.  However, experience tells me I would have paid ~$300-$400.00 for this work.  I spent a few hours and fixed it for the cost of materials. (I still had left-over paint from the original re-painting.)  Total Cost: $14.07 for two boards and some nails from Home Depot.

Normally, I would simply ask for estimates and tell the rental management company to get it done.  However, I had the both the time and the know-how to do these projects and I was itching to save the money.  Why?  The "Secret Weapon".

You see, we all get the unexpected bills.  I try to account for the larger annual expenses by taking the annual cost and dividing by 12(months) and then adding 1/12 to my monthly budget as an accumulating expense.  When the annual bill arrives, I already have the monies saved and can easily pay the invoice.  This tactic has saved me from many numerous annual, budget-busting surprises over the years.  I do this with my personal budget, my business budget and my rental real estate budget.  It's a must!  But, I digress...

At times. the free cash flow from my rental real estate supplements the current $3,400 additional principal payout each month.  When the unexpected personal budget busters appear out of nowhere and seek to demolish my budget and speedy rental payoff plan, I turn to my "Secret Weapon": my rental real-estate cash in order to supplement my payoff.  This month I expect a shortfall of $826.00 due to my wife's medical bills and other unforeseen items.  Rental real-estate cash to the rescue!

If you invest in rental real-estate, you must seek cash-flow-positive rentals.  In my case, the free cash flow is helping me to pay them off in rapid fashion.  This month, I had the time and circumstances to preserve more of those funds and took advantage of those circumstances.  Most months I'm too busy pursuing other personal endeavors to do that.  However, my goal of a quick payoff has given me additional incentive to preserve those funds so that they'll be available to become my "Secret Weapon".

2 comments:

Anne @ Hello Newmans said...

just stumbled upon your blog. Have loved reading through you posts. My husband and I own three rentals but we did not buy them as "smart" as we should have. BUT we are putting together a plan to get them paid off - or even sell them and start over by making smarter purchases up front - into properties that cash flow.

Pay off my rentals said...

Hi, Anne. Welcome!

Fortunately you can (and do) learn as you go. It sounds like you're a lot smarter now and I'm sure you'll do much better going forward. Just beware of the transaction costs of selling rental properties. You can lose a lot of headway selling them.

I hope to continue with the background posts. I've just gotten a little lazy about them. I'm glad you enjoyed.