How are investors missing this?
Most Popular Reply
Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
3yif your PM is doing it right they are raising the rents each year to increase your income.
BUT...... you should not be investing for just for "cashflow". What I mean is that cashflow should be looked at as the cherry on top. It goes down, it goes up. One month you might have a vacancy, one month you might have a maintenance item. You can't rely on just cashflow. There is so so so much more to real estate than just cashflow and it takes patience.
------> This is the tortoise and the hare approach. You buy a property that has enough profits in it to cover unforeseen expenses, and then......you save! You put your profits into a HY savings account (email me if you want the one that I use for 4.5% return) then you are making a return on your return. Then if you need to pull $ out for expenses you pull from there. In the meantime it is making money and saving for the next property.
Now you wait.... let that baby do its thing. If you are leveraged (which is what you want) the tenant pays down your mortgage each month (giving you FREE equity) the property if in a good area is going UP in value ....... you are hedging inflation locked into a long loan.
Your PM is raising the rents each year and you hold hold hold.
That is how you grow wealth. Cashflow DOES NOT create wealth. Unless you own like 100 properties, or invest in STR's (yes that is high cashflow). True wealth is created through the asset growing up in value through equity pay down, appreciation and inflation going up.
Melissa
36 Replies
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
🤣
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
This is a newbie approach to investing. This is typically what realtors will brainwash their clients with. To be fair, insurance and taxes may see a decline with the coming recession.
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Speaking as an investor with long term properties in a high property tax state (Florida) , we are doing ok. I can't speak for Texas or anyone else, but my LTRs are doing great even with the tax and insurance increases. No big game talk, just facts in my case.
Quote from @Ray Hage:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Speaking as an investor with long term properties in a high property tax state (Florida) , we are doing ok. I can't speak for Texas or anyone else, but my LTRs are doing great even with the tax and insurance increases. No big game talk, just facts in my case.
Glad it’s working out for you.
That has not been my observation for the most part in Texas….San Antonio respectfully.- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes3y
My rents have typically risen much faster than my taxes and insurance. But Im in generally a low property tax part of the country and in a major metro area where rent growth is robust.
District Invest Group545 Reviews Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
How often do you fly to these areas?
- Now those are winning numbers! May I ask how do I get in there with you? It is impressive seriously! I know nothing about either market but would love to learn.
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
Quote from @Joe S.:
Quote from @Ray Hage:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Speaking as an investor with long term properties in a high property tax state (Florida) , we are doing ok. I can't speak for Texas or anyone else, but my LTRs are doing great even with the tax and insurance increases. No big game talk, just facts in my case.
Glad it’s working out for you.
That has not been my observation for the most part in Texas….San Antonio respectfully.If there is no way to get the costs under control, it means it is time to sell. I am sure if you didn't buy very recently, you can cash out nicely and 1031 into a different market. I know that wouldn't be fun but it would be profitable with the right market. However it is going to be an effort to learn a new mkt. I am not so familiar with San Antonio but it sounds like it's a hard market to make money in.
Quote from @Ray Hage:
Now those are winning numbers! May I ask how do I get in there with you? It is impressive seriously! I know nothing about either market but would love to learn.Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
I wish it was like 5, 6 7 years ago, 25- 30% net caps, happy to provide guidance.
Quote from @Joe S.:
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
How often do you fly to these areas?
Cleveland twice a year, Mississippi will be about the same, I was just there last month ,
- Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes3y
if your PM is doing it right they are raising the rents each year to increase your income.
BUT...... you should not be investing for just for "cashflow". What I mean is that cashflow should be looked at as the cherry on top. It goes down, it goes up. One month you might have a vacancy, one month you might have a maintenance item. You can't rely on just cashflow. There is so so so much more to real estate than just cashflow and it takes patience.
------> This is the tortoise and the hare approach. You buy a property that has enough profits in it to cover unforeseen expenses, and then......you save! You put your profits into a HY savings account (email me if you want the one that I use for 4.5% return) then you are making a return on your return. Then if you need to pull $ out for expenses you pull from there. In the meantime it is making money and saving for the next property.
Now you wait.... let that baby do its thing. If you are leveraged (which is what you want) the tenant pays down your mortgage each month (giving you FREE equity) the property if in a good area is going UP in value ....... you are hedging inflation locked into a long loan.
Your PM is raising the rents each year and you hold hold hold.
That is how you grow wealth. Cashflow DOES NOT create wealth. Unless you own like 100 properties, or invest in STR's (yes that is high cashflow). True wealth is created through the asset growing up in value through equity pay down, appreciation and inflation going up.
Melissa
Quote from @Melissa Nash:
if your PM is doing it right they are raising the rents each year to increase your income.
BUT...... you should not be investing for just for "cashflow". What I mean is that cashflow should be looked at as the cherry on top. It goes down, it goes up. One month you might have a vacancy, one month you might have a maintenance item. You can't rely on just cashflow. There is so so so much more to real estate than just cashflow and it takes patience.
------> This is the tortoise and the hare approach. You buy a property that has enough profits in it to cover unforeseen expenses, and then......you save! You put your profits into a HY savings account (email me if you want the one that I use for 4.5% return) then you are making a return on your return. Then if you need to pull $ out for expenses you pull from there. In the meantime it is making money and saving for the next property.
Now you wait.... let that baby do its thing. If you are leveraged (which is what you want) the tenant pays down your mortgage each month (giving you FREE equity) the property if in a good area is going UP in value ....... you are hedging inflation locked into a long loan.
Your PM is raising the rents each year and you hold hold hold.
That is how you grow wealth. Cashflow DOES NOT create wealth. Unless you own like 100 properties, or invest in STR's (yes that is high cashflow). True wealth is created through the asset growing up in value through equity pay down, appreciation and inflation going up.
Melissa
All good points. We are raising our rents, but not at the speed that the county is raising the taxes. Lol.
I know the tax man isn't the most popular person to anyone, but the situation you paint doesn't really matter and that's the beauty of REI. Most rental's expenses are fixed (mortgage),the variable costs, taxes and insurance, can rise at far higher rates than rental growth and cash flow will still rise!
Running a back of the napkin model of a rental in Austin, Taxes and Insurance would have to rise at 11%/yr negate a rental rate increase of 3%/yr. Now I'm sure ppl can find situations where this happens, but in general, I think your worries are unfounded.- Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes3y
Taxes and insurance are such a small portion of rental expenses. They'd have to go up 300% to outpace a rent increase 2% or whatever.
for example, in chattanooga I have rentals where insurance is usually around $600/yr. 50/mo. They rent for say $1200/mo.
so a 10% increase in insurance is only $5. Rent can match this with only a .004% increase.
- Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes3y
Quote from @Joe S.:
Quote from @Melissa Nash:
if your PM is doing it right they are raising the rents each year to increase your income.
BUT...... you should not be investing for just for "cashflow". What I mean is that cashflow should be looked at as the cherry on top. It goes down, it goes up. One month you might have a vacancy, one month you might have a maintenance item. You can't rely on just cashflow. There is so so so much more to real estate than just cashflow and it takes patience.
------> This is the tortoise and the hare approach. You buy a property that has enough profits in it to cover unforeseen expenses, and then......you save! You put your profits into a HY savings account (email me if you want the one that I use for 4.5% return) then you are making a return on your return. Then if you need to pull $ out for expenses you pull from there. In the meantime it is making money and saving for the next property.
Now you wait.... let that baby do its thing. If you are leveraged (which is what you want) the tenant pays down your mortgage each month (giving you FREE equity) the property if in a good area is going UP in value ....... you are hedging inflation locked into a long loan.
Your PM is raising the rents each year and you hold hold hold.
That is how you grow wealth. Cashflow DOES NOT create wealth. Unless you own like 100 properties, or invest in STR's (yes that is high cashflow). True wealth is created through the asset growing up in value through equity pay down, appreciation and inflation going up.
Melissa
All good points. We are raising our rents, but not at the speed that the county is raising the taxes. Lol.
BC that is texas.... One of the highest property taxes in the country, Try KC or Al - very low property taxes :)
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
good luck in Jackson buying those kind of returns been there done that . very tough market in those price points. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Joe S.
Currently yes, but have you evaluated it in 20 year cycles?
7e investments53 Reviews - Rental Property Investor · New Braunfels, TX · Member since 2022 · 409 posts · 408 votes3yJoe, you have been on BP for quite some time. I live just a town over from you in New Braunfels and wouldn’t trade my rental properties for anything.
Quote from @Joe S.:
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Sure the property taxes and insurance are going up but so are the rents and property values. If they aren’t, then you bought in areas that you shouldn’t have and that’s what you need to change. I’ve lived within a mile of IH35 in Austin and New Braunfels for 41 years. It’s never stopped growing. Most of my rentals are within a mile of IH35.
I have only bought from tax/foreclosure sales since 2017 in this area because of prices but the last 6 houses I bought from these sales have made me over $400K in profit after rehab (I don’t sell, I just keep as rentals). That pays for a lot of Insurance and property tax increases. Quote from @Jay Hinrichs:
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
good luck in Jackson buying those kind of returns been there done that . very tough market in those price points.Well, my buddy has about 50, all occupied for years, with better the 10% nets caps. We are starting with 10 and working on a pack of 150. Not our 1st BBQ. No market is more difficult to navigate then Cleveland, Memphis, Indy, so this is a piece of cake for us, withOUT snow and freezing rain.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Bob S.:
Quote from @Jay Hinrichs:
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
good luck in Jackson buying those kind of returns been there done that . very tough market in those price points.Well, my buddy has about 50, all occupied for years, with better the 10% nets caps. We are starting with 10 and working on a pack of 150. Not our 1st BBQ. No market is more difficult to navigate then Cleveland, Memphis, Indy, so this is a piece of cake for us, withOUT snow and freezing rain.
I have loaned on more than 750 props in Jackson and owned over 200.. you think its easier than the other cities you will soon find out its not. .. going for those high cap rates is going to be a wild ride for you and for many reasons you have no clue about right now. Good luck though ! Quote from @Jay Hinrichs:
Quote from @Bob S.:
Quote from @Jay Hinrichs:
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
good luck in Jackson buying those kind of returns been there done that . very tough market in those price points.Well, my buddy has about 50, all occupied for years, with better the 10% nets caps. We are starting with 10 and working on a pack of 150. Not our 1st BBQ. No market is more difficult to navigate then Cleveland, Memphis, Indy, so this is a piece of cake for us, withOUT snow and freezing rain.
I have loaned on more than 750 props in Jackson and owned over 200.. you think its easier than the other cities you will soon find out its not. .. going for those high cap rates is going to be a wild ride for you and for many reasons you have no clue about right now. Good luck though !Love a Challege, we surrounded ourselves with the top players there, no concern After being in the Cleveland markets for 10 years, nothing will phase me. Hey NO snow LOL
All the best
- 3yRaju BalakrishnanPro MemberRental Property Investor · Santa Clara, CA · Member since 2016 · 223 posts · 112 votes
I would be thrilled to see a city with high cash flow and high appreciation. If such a city exists, investors will flock there and drive property values up and there will no longer be a cash flow. So in certain way, real estate is self-balancing like other markets like stocks. Generally you will have to choose a market balancing these factors according to your goals. High appreciation markets are generally for investors who would have a higher risk tolerance and do not need cash flow now, whereas high cashflow markets are for people who need immediate money and ready to put higher effort to realize that (compare buying and managing twenty 50k per door houses in low priced market for cashflow vs buying one house for 1MM and managing one tenant in a high priced market for appreciation).
- 3yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Quote from @Jay Hinrichs:
Quote from @Bob S.:
Quote from @Jay Hinrichs:
Quote from @Bob S.:
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Go to another state. I live in FL ( FL is going to correct big time, its coming ) and do all my business in OH and now Jackson Mississippi, 10% net caps based on cash purchases, I get as many as I want. My avg rent is 1300 for a 3/2 with taxes of 1500, all in under 80k,
good luck in Jackson buying those kind of returns been there done that . very tough market in those price points.Well, my buddy has about 50, all occupied for years, with better the 10% nets caps. We are starting with 10 and working on a pack of 150. Not our 1st BBQ. No market is more difficult to navigate then Cleveland, Memphis, Indy, so this is a piece of cake for us, withOUT snow and freezing rain.
I have loaned on more than 750 props in Jackson and owned over 200.. you think its easier than the other cities you will soon find out its not. .. going for those high cap rates is going to be a wild ride for you and for many reasons you have no clue about right now. Good luck though !Jay,
We've researched and visited Jackson so many times over the years I've lost count. Good luck to Bob. If he's holding them, then he knows the risks going in and can decide for himself if he likes the results. However, if they are being sold to another investor that is an entirely different story.
We have held off moving into Jackson, MS because we have such a high responsibility to the investors who ultimately own these properties. We manage these homes and the economics make it nearly impossible to make money over the long-term unless you live there and are actively managing them. And I mean very active. I too have invested in these areas and price points semi-passively and it just carries so much risk. Those numbers reflect just how rough these areas are and how challenged they are for residents. 51% of the homes for sale in Jackson are priced under $100,000. On paper, it looks like a so-so bet, but if you are passive or semi-passive, it comes with the kind of risks that just tilt the scales massively against success. I would venture to say more than half of the properties we've viewed down there vacant and in need of major work were rentals being given up by the owners.
- 3yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Quote from @Joe S.:
So I hear people talking big game about owning Properties long term and the cash flow going up.
In some states that are high property tax state like Texas here is what I have seen.
1. The taxes and insurance are increasing faster than the rent.
Texas is such a different state though in how they treat property taxes and what they use them for. True, they are high and rents are not rising as fast as home values which is raising the taxes. But those taxes are directly used for public infrastructure being built and improved. I know that equity value is almost always inaccessible so it's not liquid unless we refinance or use a HELOC to realize it. The other option is selling, but that is not usually an option without a 1031 for a long-term hold investor.
In San Antonio, Houston and the DFW metro-plex, you have some of the highest and fastest growing areas of the country in jobs and migration. People are moving to these cities for the jobs, the climate, the schools, etc. I think we can continue to count on modest rent growth, nothing crazy but small yearly increases. Enough to notice the growth but not squeeze residents to move. And I also anticipate tax growth slowing down a bit as the dollars needed for growth slow down. I don't think rents will necessarily catch up meaning annual higher cash flow in those cities may not be possible, but value creation is real. And when an investor wants to review selling (usually 7-10 years in), the IRR on those properties (depending on area and how long ago they were bought) will be exceptional.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.