Moving Discovery, How my landlord makes a killing!

Moving apartments, dorm rooms or houses in college majorly sucks! It takes all damn day, it gets you extremely frustrated, the landlords are useless and it really tires you out. So you’re probably thinking I have an extremely cool strategy to help you move all your stuff, or how hiring a U-haul is stupid (it is not, it is probably the best thing you could do). But that’s not what I am here to discuss.

I recently moved from a 1 bedroom apartment near campus into a 5 bedroom house near campus. Well actually I moved today, it really got me thinking. So I was renting this 1 bedroom apartment for $525 a month, yes $525 a month. It may or may not be expensive to some people, but relative to the area I live in it is on the higher end of the spectrum. It was nice, clean and simple apartment so I didn’t complain too much. But by the time it came around to pay my first month’s rent of my new place I realized my slumlord, sorry I mean landlord makes an absolute killing each month.

So we have 5 bedrooms in our house, we each pay $425 a month. Wait what??? Four Hundred and Twenty-Five dollars a month, so $2125 a month total rent for this crappy house. Now again I believe that situations and circumstances need to be reviewed relative to the situation for them to be considered expenses or cheap. So I Zillowed this old house we are living in and found out that back in 2006 the owner of this house paid $45,000 for this house. Assuming our landlord payed cash and expenses are excluded our slumlord gets 56% of his money back. I don’t know about you but that investment sounds too good to be true.

I decided to assess this house as if I was going to buy it to truly make a good judgment on the investment potential. Now I have made a couple of assumptions I assumed that the house appreciated over the 8 year period (which it has, but barely). I also assume that my expenses will be substantially higher than the slumlord currently, because I really can’t see what he spends his money on in this house. I also will assume that my interest rate is 5% amortized over 30 years, this is just to get a rough idea to what a real investor would face. The following is a spread sheet familiar to subscribers and viewers of my last post. It is the summarized data of this property.

So below is the full information but here is some of the outstanding facts. Which leads me to believe that my toilet is broken because my landlord is to rich to care. Firstly, the cash on cash return of 63% which means my landlord recoups his initial investment in the first year and then some. That number is inflated because it doesn’t cover costs of repairs and other such things, but it is still a great number. Secondly, the net annual income at $17,460 is crazy!! My slumlord earns almost half of the money required to buy the house, absolutely crazy! Another thing I would like to point out is the net annual income including our 50% rule. The 50% rule is a rule of thumb when deciding to buy an investment property; It basically states that 50% of your monthly income, after your mortgage, should be dedicated to expenses, repairs and vacancies. This is obviously not the case for every house but it is a conservative estimate. My landlord does not spend 50% of his income on this house (that is for certain) but it is a good gage if my landlord cared a little more. He would earn at the end of the year $4,710 which in the end is not bad, it puts the return at 8% annually (better then a lot of stock investments).

There you have it my landlord’s figures. He makes bank on us poor college students!!

Property Information
Bedrooms	5
Bathrooms	2
Heat Source	Gas
Asking Price	$55,000
Purchase price	55,000
Estimated Repairs
Value after Repairs	$55,000
Garage	No
Laundry Room	In basement
Year Built	1915/ Extension
Wiring Condition	Good
Plumbing Condition	Good
Square Footage	2474
Appraised  Value	$53,000
Section 2
Buy and Hold Cashflow
Purchase Price	$55,000
Purchase Closing Costs	$1,500
Repairs	$0
Holding Costs	$0
Down Payment	$11,000
Total Investment	$12,500
Total loan Amount	$44,000
Number of Units	5
Average rent per unit (monthly)	$425
Total Loan amount	$44,000
Interest Rate	5.00%
Term Length of loan (months	360
Interest Rate per month
Total Monthly mortgage payment	$403
Monthly Insurance	$100
Monthly Property Taxes	$167
Other Monthly expenses	$0
Total monthly expenses (no mortgage)	$267
Total monthly expenses (mortgage)	$670
Other Monthly Income	$0
Total Gross Monthly income (Rent)	$2,125
Total annual expenses (no mortgage)	$3,204
Total annual expenses (mortgage)	$8,040
Total Gross Annual Income	$25,500
Total annual Income	$17,460
Net operating income	$22,296
Cashflow per month	$1,455
Annual cashflow average	$17,460
Down Payment	$11,000.00
Annual cash flow	$17,460
Annual Cash on Cash return	63.00%
50% Rule: (Expenses/ Repairs)
Total Monthly income x 50%	$1,062.5
Mortgage Principle and interest	$403
Cashflow based on 50% rule	$659.5
Cashflow based on 50% rule (All expenses)	$392.5
Cashflow per unit (Minimum $100, Goal $200)	$78.50
Net Annual Income	$4,710.0