Are interest rates changing your deal criteria? High prop taxes?

[Nader Hachem]

With interest rates rising, looking to purchase a rental property now is more expensive. This results in lower cash flow, and potentially makes what would be a deal 1-2 years ago, into a negative cash flow property now.

How are you looking at rising interest rates? When running numbers, are you still sticking to your cashflow goal (of say $200 a month) or are you okay with less cash flow a month in the hopes of refinancing some time in the future. Since long-term rentals are exactly that, long term, it's important to not only focus on the numbers right now, but also in the future. 

One other thing I've been running into is running my numbers and finding very high property taxes. From the numbers i've been running, it seems like property taxes on non-homestead properties in my price range (150-200K) are around $500 a month, which seems to kill any deal in itself. Does anyone else deal with high property taxes that potentially sway the numbers? What are your thoughts?

[Scott Trench]

This is all true, but the analysis does not change. I don't like a fixed number for cash flow, rather I like a cash on cash yield.

While property values, interest rates, and taxes have been going up, one thing has been going as fast or faster: Rents. 

This is perhaps the first year in the last 10 where rents are rising faster than property values. Cash flow should start to become easier, not harder, to find. 

[Nader Hachem]

Quote from @Scott Trench:

This is all true, but the analysis does not change. I don't like a fixed number for cash flow, rather I like a cash on cash yield.

While property values, interest rates, and taxes have been going up, one thing has been going as fast or faster: Rents. 

This is perhaps the first year in the last 10 where rents are rising faster than property values. Cash flow should start to become easier, not harder, to find. 

Hey Scott,

Curious, what kind of cash on cash yield do you shoot for? In my situation, i find it that properties within my price range (110-175K, needing about 30-35K of my own cash), are the ones that usually cash-flow better. As far as cash on cash yield, it seems since i'm likely going to put 20/25% down on my first property, that number is usually lower. 

The one benefit i see greatly from real estate is there are multiple ways to generate wealth. Appreciation, cash flow, tax benefits, equity, etc. With that being said - i find it difficult to make a decision based on cash on cash yield because i know with all factors involved, it's likely to be a great deal in the long run (assuming it's not in a completely trashed neighborhood, or a money sucking property)

[Mike Dymski]

For long term holds, I always included higher rates than 3-4% in my underwriting to account for changes over time.  And even with higher rates, we are getting paid to borrow money (inflation is higher than interest rates).