How 11 Rental Properties Increased My Net Worth $600,000 in 3.5 Years
I have bought 11 rental properties since December 2010 and I thought it would be fun to figure out how much those rentals have increased my net worth. I like to focus on the cash flow my rental properties produce, because that is actual money in my pocket. After doing some calculating I discovered my rental properties have appreciated and been bought cheap enough to produce a gain of $600,000 since December of 2010! It is important to remember that net worth is all on paper and I would not profit $600,000 if I decided to sell all of my rental properties today. I would have to have selling costs and I would have a large tax bill if I sold my rental properties.
For more information on my rental properties and investment strategies, check out my complete guide to investing in long-term rental properties.
Why did I want to figure how much my rental properties increased my net worth?
The last couple of months have been very stressful! I usually try to be as relaxed as possible, because I do my best work when I am happy and not worried about work or other issues. I have 9 fix and flips going right now and I have had problems getting good contractors to complete the work on them. I have added two real estate agents to my team, who are brand new and they require training. In the midst of adding two new agents, we have implemented a new program for our team to increase productivity, which requires a lot more of my time. I also bought Lamborghini recently (which has been in the shop for three weeks for emissions issues), we spent a week in Disneyland and I bought another rental property!
I think when I have the most going on or I am stressed, the best thing I can do is not work harder, but take a step back. I like to look at the big picture, the things I have accomplished, where I was five years ago and what the worst case scenario is now if everything blew up. It turns out the worst case scenario is not that bad and I will be just fine even if the worst did happen. That helped me relax and be more positive about things and I find the more positive I am, the better work I do and the better things turn out. Figuring out how much money my rental properties made me, really help me think positively about my plans and how things have gone.
A great tool to help you track your net worth and spending is Personal Capital. It is a free program and links all of your accounts into one easy to use program.
How did I gain $600,000 in net worth from my rental properties?
One thing I have done with every rental property I buy is I buy them below market value. I try to buy my properties at least 20% below the current value and if a home needs repairs, I want that rental property worth 20% more than the price I paid plus the cost of the repairs. For example; if I buy a rental for $100,000 and it needs $20,000 in work, I want it to be worth $144,000 or more when I am done repairing the home ($100,000 + $20,000 = $120,000 * .20 = $144,000). That means I usually gain at least $20,000 in net worth on every rental property I buy. The 11 rentals I have bought have gained at least $220,000 (I buy many properties more than 20% below market) just on buying homes at the right price.
I also have been lucky that prices have increased significantly in Northern Colorado in the last few years. I would say lucky for the sake of calculating net worth, but the increase in prices have made it harder to buy cheap rental properties with great cash flow. If you want to know how much my houses have appreciated, I broke down each rental and how much money it has made below.
Having trouble finding a great deal on a house? Check out my book How to Buy Real Estate Below Market Value, which describes how I buy 10-15 fix and flips a year as well as multiple rental properties. The book is available as an 113 page E book on Amazon or as a PDF here for $7.99.
How much has my net worth increased from rental property number 1?
I bought my first rental property for $96,900 on 12/5/2010. At the time I bought it, I knew it was worth at least $125,000, which is not a huge spread between the buy price and fair market value, but the home needed less than $2,000 in repairs.
The house is now worth at least $165,000 and most likely more. I had it appraised earlier this year and the appraisal was $165,000 and our market values have increased since that time. If the house is worth $165,000, then my net worth increased about $66,000 after you subtract the repairs. The home was rented for 1,050 a month when I first bought it and now is rented for $1,400 a month. I also paid off this house early in 2014.
How much did my net worth increase from rental property number 2?
I bought rental property number 2 for $94,000 on 10/5/2011. This home needed much more work than number one and I spent about $15,000 repairing the house. At the time I bought this house I thought it was worth $140,000 after it was repaired and this house is now worth around $175,000. That leaves me with a net worth increase of about $66,000 on this property as well.
This house has been rented to my brother-in-law since I have owned it. The rent has been steady at $1,100 the entire time, but could be $1,400 to $1,500. My brother-in-law has a house under contract and will be moving soon.
How much did my net worth increase on rental property number 3?
I bought my third rental property for $92,000 on 11/21/2011. This house needed repairs and I spent about $14,000 getting it ready to rent. At the time I bought this house I thought it was worth $135,000 fixed up and this house is now worth around $170,000, which creates a net worth increase of $64,000.
This home has been rented to the same tenants for $1,250 a month, but we just raised the rent this month to $1,300 a month. It would probably rent for $1,400 to $1,500 to a new tenant.
How much did I increase my net worth with rental property number 4?
I bought rental property number 4 for $109,000 on 1/25/2012. This home also needed about $14,000 in repairs before it could be rented. At the time I bought this house I thought it was was worth$145,000. This house is one of my most valuable rental properties and is worth $185,000 in today’s market. That leaves a net worth gain of $62,000.
This home was rented for $1,300 up until this year when I rented it to new tenants for $1,500 a month.
How much did my net worth increase on rental property number five?
I bought rental property number five for $88,249 on 12/14/2012 and it needed more repairs than the others. The market had definitely begun to improve at this point and finding a home that was under $100,000 was very tough. This home was a good deal even though it needed $18,000 in repairs. I thought it was worth around $130,000 when I bought it and I now think it is worth $165,000. That leave a net with increase of $59,000.
This home has been rented to the same tenants for $1,200 a month.
How much did my net worth increase with rental property number 6?
I bought rental property number six for $115,000 on 3/7/2013. This house needed about $15,000 in repairs and I thought the property was worth about $150,000 after it was fixed up when I bought it. It is now with $170,000 and that leaves a net worth increase of $40,000.
This home was first rented for $1,300 a month until earlier this year it was rented for $1,400 a month.
How much did my net worth increase on rental property number 7?
I bought rental property number 7 for $113,000 on 4/18/2013. This house needed only $9,000 in repairs and I thought it was worth $155,000 when I bought it. This neighborhood has done great and the home is now with $185,000, which leaves a net worth increase of $63,000.
This home has been rented for $1,400 a month since I bought it.
How much did my net worth increase from rental property number 8?
I bought rental property number 8 for 97,500 on 11/18/2013. The home needed $15,000 in repairs and I thought it was worth $150,000 once fixed up. It is now worth $165,000 and that leaves a net worth increase of $52,000.
This home has been rented or $1,400 a month since I bought it.
How much did my net worth increase with rental property number 9?
I bought rental property number 9 for $133,000 on 2/14/2014. This home only needed $4,000 in work before it was rented and I thought it was worth $155,000 after it was repaired. I think it is worth $165,000 now and that leaves a net worth increase of $28,000.
This home is rented for $1,400 a month.
How much did my net worth increase from rental property number 10?
I bought rental property number 10 for $99,928 on 4/13/2014. The home only needed $3,500 in repairs before it was rented and I thought the home was worth $125,000 when I bought it. I think it is with about $130,000 now leaving a net worth increase of $26,500.
This home is rented for $1,250.
How much did my net worth increase with rental property number 11?
I just bought rental property number 11 on 7/24/2014. This house will need about $15,000 in repairs and I paid $109,318. I think this house is worth $155,000 repaired leaving a net worth increase of $30,000.
I think this home will rent for $1,400 a month.
What is the total net worth increase from my rental properties?
If you add up all these numbers my total net worth has increased by $556,500, but these numbers do not tell the entire story. I had more costs than I listed when I first bought these houses, but I did not go back through each closing file to get those exact costs. On many of these properties I had the seller pay come closing costs, which covered much of my buying costs. I also had some carrying costs while I was getting the properties repaired and they were not rented yet. However, I also did not include any of my cash flow or the money I made on these properties since 2010. I used all of my cash flow to pay off rental property number 1, which added up to over $70,000. That $70,000 in cash flow definitely covers all the closing and carrying costs I had on each property and went directly to increasing my net worth by paying off a loan. Speaking of paying down loans, I did not include the equity I have gained over the last 3.5 years by paying down my loans. I have paid down thousands of dollars of loan balances with regular payments on my rental properties.
Why is net with deceiving?
Net worth is not money in my pocket, but what I am worth on paper. Even though it is cool to see this number increase over time, this money is not all readily available. I would have to sell my rental properties to see this money and I would not see all it. There would be selling costs when I sell the properties and taxes owed once I sold them. Since I am using the depreciation on the rental properties to save my in taxes, I would have a higher than normal tax bill because I would have to recapture that depreciation.
I felt much better after figuring how much my rental properties have increased my net worth. Even though this money is not usable right now, I do get to use the cash flow they produce. I figure my rental properties are making me well over $50,000 a year. Once I get some fix and flips sold, I will definitely be buying more rentals!