90% Milestone Reflection

?July 22, 2021

This is my ninth article on following a financial advisor’s decision to purchase a rundown house next to his office building and convert it to a rental.? Feel free to read my earlier articles.

I cannot believe it has been over a month since I last wrote an article updating progress on my rental project.? Time flies when you’re having fun not working on the rental.? Unfortunately, I am still working on the project, and it is going slower than expected.? I did have a chance to do some reflection and do not mind sharing my thoughts.

First some good news.? I have a signed lease and have received the security deposit for a one-year term beginning September 1st.? One of the contractors that did some work liked the house very much and mentioned it to his daughter who was unhappy with her current rent situation.? In the negotiations with her I did settle at $1025 per month on the rent.? I keep a spreadsheet of all the costs incurred to date and noted I have put in $41,480 (all tax deductible) into this project.? Annual property taxes are $2250.? I was able to reclassify my property and casualty insurance as a residential rental now that I have a signed lease and 100A electrical established.? Insurance costs $600 per year.? Combined insurance and property taxes broken out monthly basis is $237.50/month.? The thirty years $90K mortgage is $747/month.? Average total fixed expenses are $984/month.? This nets me only a monthly profit of $40 – not very exciting.? All other expenses such as utilities and maintenance (lawn mowing, snow shoveling, etc.) will be covered by the tenants.? I will depreciate the $120,000 purchase over 27.5 years or approximately $364 per month at a high personal income tax rate.? After the remodeling is completed, I estimate the house to be revalued at $170,000 or $50,000 above the purchase price.? This purchase will be mostly an asset play vs income play and as a bonus I control the property next to my office building.

Financials aside, this project has cost me many hours of labor.? I keep a log of my work and estimate 10-personal man hours a week has been going into this project since December (31 weeks ago) so that equates to 310-man hours.? All work was completed during weekends or late evenings during the workdays, so it did not impact my sales production as an advisor.? I did sacrifice many other opportunities to do other fun activities such as fishing or sailing.? Many of my colleagues have argued why I wasted my time in doing this when I could have hired this out.? I argued this was a personal choice.

I did hire out many of the tasks to the professionals and tried to do the simple and mundane activities.? The tradesmen have been very busy, and I am lucky I was able to get done what I could without waiting a long time.? I had considered doing vinyl siding on the rental but noted the material shortages, high costs, and lack of available labor.? I have decided to paint the rental myself instead.

The intangible experience has value to me.? I learned a lot about home remodeling in the short timeframe.? I learned to better appreciate what the trades do and the skillset they have their talents in.? I have learned to better connect with a client when a discussion of remodeling and commiserate on the experiences.? I learned about building permits.? I also acquired a set of nice tools and feel proud of my contributions in fixing up the place.? I have not regretted anything with this project.

Since my last written article, I have completed some other major tasks.? I have removed and transported many large items to various recycling points at the waste management center.? I had a broken freezer in the garage which my wife and I emptied – a very disgusting experience – removing dead maggots and black putrid sludge of what used to be food in there.? On a more pleasant note, my son who is in the Marine Corps came home on leave and for a father-son bonding time I had him install a new garage door opening system which he had never done before but later expressed satisfaction in completing this project.? I have been using the painting equipment from my other son and prepped the rental for exterior painting.? This has included pressure wash spraying and scraping off old paint.? I even removed a couple of wasps nets in the process.? My son felt appreciated in knowing his painting knowledge could help me.

So, the question remains – will I do this again?? I do not know the answer to that but do know I look forward to completing this project!

Richard Balch