Taking Assessment of My Portfolio Returns, Part 6: Investment Property

In the 1st part of this series I determined that the total return for my net worth was a measly $2,094. In the 2nd and 3rd parts, I found my retirement and cash accounts had respectable returns of $8,331 and $778 respectively, for the year. In the 4th and 5th parts, I found my stock and company ownership investment accounts had an embarrassing returns of -$685 and -$8,892.

The last piece of my net worth is my rental property. This property was my primary residence that I converted to a rental property during the early part of 2005 after a major bathroom remodel.

You may not agree with my methodology, but I had to make a couple assumptions to calculate my return:
-all equity gained from principal paydown over the course of 2005 will count as part of my investment gain
-I am ignoring the bathroom remodel expenses as I treated those as expenses in 2005 that reduce my savings rate so if I counted them here I would be double counting those expenses
-I am only counting mortgage/escrow payments for the last 5 months of the year (basically the months the house was rented) as expenses

Lets take a look at the equity change in my property:

Description	12/31/2004	12/31/2005	Change
Equity in Rental	$38,586.00	$ 40,842.00	$2,256.00

I had a net change of $2,256 in equity for my rental property. This was calculated by finding the difference of the value of the property (I used the original purchase price) and the remaining mortgage balance.

For 2005 I had rental income of $6,000. My monthly mortgage/escrow payment is $975.83. I also had $814.85 in maintenance and other expenses for the property.

Here are the results:

Description	Income/(Exp)
Rental Equity Gain	$ 2,256.00
Rental Income	$ 6,000.00
Mortgage/Escrow Payments	$ (4,879.15)
Maintenance	$ (814.89)
Total	$ 2,562.04

Not bad. By these calculations I came out ahead by $2,562 on this rental property. This should improve in 2006 as the property should be rented for the full year.

I'll go ahead and calculate a Rate of Return although this calculation ignores alot of the costs and advantages that come with this property. I am calculating a rate of return based on my calculated equity in the property, but this ignores things such as closing costs, bathroom remodel costs, and other expenses like appliances I bought. It also doesn't factor in any of the tax advantages of rental property (which are another discussion) nor any amount the property may have appreciated.

	12/31/2004	Return	RoR
Rental Property	$ 38,586.00	$ 2,562.04	6.64%

So while I don't really place much weight on this calculation, I think it gives me a rough idea of the rate of return for this investment. Given the added benefits of appreciation and tax losses, I believe this investment property will do well in 2006 and beyond.

In the final installment to this series, I will recap my review and try to figure out what I need to focus on in 2006 to improve my overall return.