To show what this looks like in real life, I compared the spreadsheet’s projections with the actual costs and returns of a townhouse I purchased earlier this year.  I closed on this house in January, which gives us seven months of actual data to compare with the initial projections to see how well it’s performing.  

Comparing the numbers side by side, we can see how reality differed from the projections.  I recommend all of my clients undertake this exercise to get an idea of how their properties stack up to their initial projections.  While the inputs won’t match exactly, you should have enough data to get a full picture of your expectations vs reality. 

This deal analysis was featured on a live episode of Drinks and Deep Dives. You can find the podcast for this blog post within the episode #304: Deep-ER Dive – How to Calculate Profits for Your Rental Property.

Tune in Wednesdays at noon MT to join Chris live for the next Drinks and Deep Dives show. 

Property Overview

At the beginning of the year, I assisted some clients in purchasing a townhouse in a new build community located in the Security-Widefield area of Colorado Springs. Our frequent listeners will recognize this area as the country’s hottest zip code.  The area has a lot going for it, and its popularity keeps vacancy rates low.   As I helped them run the numbers, I could see that this was a great investment and ended up purchasing the home next door.  Overall, this is a nice property in a nice community. 

I purchased this home with the intention of making it a long term rental.  The purchase price was $248,900, and I put down 25% with a 3.125% 30 year fixed interest rate.  These numbers are static between both spreadsheets.  

Rental Projected vs Actual

My initial expectation was to rent out the townhouse for $1595 a month and factored in a vacancy rate of 3%.  However, I found a military family who asked to do a six month lease while they searched for their own home to buy.  They paid $1695, which was an immediate upgrade.  I was also happy that this six month lease would give me the opportunity to move the home to a summer cycle, since I generally do year to year leases.  There are generally more people looking for homes during the summer, which creates a larger pool of applicants and presents the opportunity to raise rents.  

At the beginning of August, I started renting the house out for $1825.  In calculating my actual rental income, I am blending the two rates together.  There was no gap in occupancy between July and August, so my effective vacancy rate is zero.  

Calculating Monthly Expenses

It’s a little more difficult to input my monthly expenses into the spreadsheet because the categories don’t exactly align.  I keep my own spreadsheet of everything I spend, down to keys and monthly software subscriptions.  

Taking these numbers, I added them into the spreadsheet under the categories for which they best fit. 

Projected Monthly Operating Expenses

ActualMonthly Operating Expenses

Since we’re using actual numbers, my taxes are at zero because taxes are paid by homeowners in arrears.  That means that the taxes will show up on next year’s spreadsheet, so it will look a little different then.  

Annual property insurance is $700, but I’ve paid more than that for the year so far.  I allocated a portion of the umbrella policy I use for all of my properties on a per property basis.  A lot of people don’t have this extra level of insurance, but I like it because it protects my rental properties and other assets separately, meaning someone couldn’t come after all of my assets if something were to happen.  

I’ve spent $160 on cleaning in the seven months I’ve owned the property, so I divided that number by seven to calculate my monthly cost for cleaning and maintenance.  I don’t anticipate having to clean for the rest of the year since the property is rented, but something could always break.  However, since it’s a new build, most everything is under warranty.   

Projected vs Actual Returns

Projected Returns

Actual Returns

There’s a significant difference between the projected and actual returns for this property.  My actual cash flow is $3K higher than predicted, and my cap rate is similarly 1.2% higher than expected.  

This is an example of when things go pleasantly well, but it isn’t meant to be a model.  Just because it’s performing well this year doesn’t mean it will look like this every year.  It’s a good tool to use as a guideline when making decisions, but it’s important to keep in mind that there will be good years and bad years.  While I am happy this property is performing better than expected, my strategy is still to hold the property long term and know that it will fluctuate over the years.  

When my original tenants moved out, I considered converting this property into a medium term rental.  This rental strategy yields much greater returns, and my townhouse would probably cash flow around $15K annually.  However, the upfront cost is significantly greater, requiring about $12-16K to decorate and furnish.   While the yearly returns are better, it takes a few years to recoup that extra initial outlay and entails a lot more work to get started.  Between my other properties and juggling work and family, it’s not worth it to me to invest the additional money and time to get this type of return.  In the end, the long term rental strategy for this property is getting me toward my goals.  

Finding New Build Townhomes

When people see numbers like this, they get excited about new build townhomes.  However, builders in both the Springs and Denver are becoming more wary about selling to investors.  The particular neighborhood in which I purchased this townhome has an investor cap of two homes per investor.  There are some townhouse developments on the north end of town that are very nice but not selling to investors at all.  Because of the current housing situation, developers are making their inventory available to owners first.  While the argument can be made that a family will be living the home regardless, it’s better from a public relations perspective to sell to homeowners.  

I’m keeping track of upcoming new build developments and am in contact with sales agents.   If you have any questions or want help finding a property, reach out to me and I will be happy to assist you.

How to Get Started Building Your Own Colorado Springs Rental Portfolio

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

YouTube Video

DDD: Deep-ER Dive – How to Calculate Profits for Your Rental Property