Where am I going wrong? Costs increasing and rents flat

Question

Hello BP Community,

My wife and I own two self-managed rental properties in Southwest Florida—one in Sarasota and one in Riverview. We purchased both around 2017 and, overall, the experience has been positive.

Like many in this market, rents jumped meaningfully in 2021 due to COVID-driven migration to Florida. Fast forward to today, and the environment feels very different: several active hurricane seasons, sharply higher insurance and property taxes, and rents that have now been flat for three consecutive years.

Both properties are on 15-year mortgages refinanced in 2020 at ~3%, which is obviously a huge positive. That said, current cash flow is thin:

• Sarasota: ~$150/month
• Riverview: ~$75/month

I’m hesitant to push rents. The Sarasota tenant has been excellent and is approaching four years with us. The Riverview tenant pays on time but requires significantly more hands-on management.

My concern is simple:Do we continue holding, accepting minimal cash flow today while costs steadily rise—and risk slipping negative over the next few years? Or does it make more sense to hold until the market stabilizes and look for an opportunity to exit, even if that means giving up historically low mortgage rates?

I hate the idea of walking away from 3% debt, but I also don’t want to blindly hold assets that could become a cash-flow drag.

For those who’ve navigated similar situations—especially in high-cost, hurricane-prone markets—how would you think about this decision? Are there specific metrics, timelines, or triggers you’d focus on?

Appreciate any insight or perspective.

Thank you,Justin

Kevin Sobilo · Answer

@Michael J salemy, very good explanation. A few thoughts:

1. You are on 15 year mortgages when 30 year were likely available to you. That means you prioritized these properties over money in your pocket to grow. The cash-flow in your pocket is "thin" specifically because you made this choice to build equity faster at the expense of cash-flow.

2. Consider the equity you are building in your thinking. You approaching year 7 in a 15 year mortgage! The principal paid each month is accelerating! Over the next 7 years you will literally pay off something like 2/3 the original mortgage amount. That is a LOT of gain you didn't think about in your initial post!

3. The equity built in #2 is going to explode your returns even if things stay thin cash-flow wise, BUT in ~8 years your cash-flow will explode when the mortgages are paid off.

So, right now you are MAKING GOOD MONEY but most of it is going into the equity of the property and in 8 years that will flip to putting good money in your pocket!

4. In many markets cash-flowing rentals are hard to find. So, if you sold to buy a "better property" using a 1031 exchange to defer taxes on the sale could you find anything better? I'm guessing you can't because its hard to find cash-flow and in part that is because of those great loans you have.

5. I think you could even justify going cash-flow negative without worry because in a moderate amount of time you KNOW you will have ample cash-flow when these mortgages get paid off.

6. The only reason I personally would sell or refinance these would be if there was a smoking  opportunity I wanted to buy and I needed to tap into the equity to make it happen. Otherwise, I would stick and stay and make it pay just as you have been.

7. Trends from the past couple years were not unexpected. Just like the big run ups of values and rents during COVID were not the long term norm, neither is rising expenses and flat rents. So, eventually things are likely to change again.

Long term averages are just that averages. It doesn't mean that its common for things to have a slow steady pace of change at that rate. You experienced some highs and now some lower points... It averages out and will continue to in all likelihood. Remember real estate is a get rich SLOW scheme.

Jim Johnson · Answer

You’re not doing anything “wrong” — you’re experiencing the shift from a growth phase to an operating phase. When rents flatten and expenses rise, the focus moves from appreciation to asset performance and risk management.

A few lenses that help frame this decision:

1. Separate the loan from the property.
The 3% debt is excellent, but cheap financing doesn’t automatically make an asset a strong long-term hold. The real question is whether the property’s income can sustainably carry rising costs, not just whether the rate is attractive.

2. Look at the trend, not just current cash flow.
Margins of $75–$150/month leave very little room for:

• a vacancy
• a major repair
• another insurance or tax increase
If expenses have been climbing consistently while rents stall, that’s a structural squeeze, not a temporary dip.

a vacancy

a major repair

another insurance or tax increase
If expenses have been climbing consistently while rents stall, that’s a structural squeeze, not a temporary dip.

3. Consider equity efficiency.
Ask what your trapped equity could reasonably produce elsewhere versus what these properties are likely to return over the next 3–5 years. Opportunity cost often matters more than the interest rate.

4. Evaluate risk tolerance.
Hurricane exposure, insurance volatility, and maintenance inflation increase operational risk. Thin cash flow means those risks hit harder.

That said, long-term fixed debt at 3% is still a strong hedge if you believe:

• rents will eventually catch up
• the locations remain fundamentally strong
• there are no large deferred capital expenses ahead

rents will eventually catch up

the locations remain fundamentally strong

there are no large deferred capital expenses ahead

This usually isn’t a “rate decision” — it’s a portfolio fit and risk-adjusted return decision. The key question becomes: Do these properties still match your strategy in a higher-cost, slower-growth environment?

Dave Foster · Answer

@Michael J Salemy, Is your goal cash flow now or equity growth?  Your chief complaint seems to be about cash flow.  Which is valid.  NOI is skinny.  But your IRR is actually very good. As others have pointed out.  The amortization of that low-interest loan by itself is incredible.  I'd be surprised if your leverage on the value of the asset at this point isn't well below 50%.

But if monthly NOI is really bothering you and  you decide to sell one or both properties, you could do a 1031 exchange.  You've got a ton of equity, which could be put into other assets with lower monthly costs, and  this would allow you to defer all of the tax on profit from your sale and reinvest it into another property/properties.

You could consolidate and sell multiple properties and a 1031 and purchase a larger investment property, like multi-family or commercial, if you wanted to scale your RE portfolio. Or go the opposite direction and sell them and buy multiple other properties, including a couple for cash.  Use debt for the others and scale your portfolio that way.

I think for you, it all comes down to how important monthly cash flow is.  Your loans are great.  The IRR is very good.  And you're probably not going to get nearly as good an interest rate.  But the trade-off could be a large scaling up into better-producing assets.

Rick Pozos · Answer

With a low rate and only 9 years to get paid off, I would look at these properties for what they are, investments.

You put some money down and you may need to put in $200 each month for the next 2 or 3 years. That comes out to $10k to 15k plus down payment. Rents should increase soon and maybe you will not feed the beast much more. BUT, you will be paid off in 9 years. In 2035, you have lots of equity and lots more cash flow. Invest now, you get rewarded later.

Jaron Walling · Answer

@Michael J salemy We're in a similar situation with one of our SFR. I purchased it 2018 and refinanced into a 30 year 3.5% conventional, with a lower LTV. It's cash-flow poor but equity high. The rents are 40% below market levels (rented to family) but we don't care. It's a win-win for parties.

Like the other responses stated above don't rock the boat. You already won with those properties in Florida. You're <7 years away from massive cash-flow. If you want to sacrifice the rate for higher NOI you could refinance or pull equity to gain excess to capital. Given the tenants and situation you described I'd hold and find capital else where (OPM, HELOC on primary, partner, HM).

Jorge Vazquez · Answer

Also, I don’t think it makes sense to pull out of real estate right now. If you ask me which market is more due for a correction, it’s probably the stock market. No one has a crystal ball, but one of the biggest mistakes I’ve seen—by billionaires, millionaires, and regular people like me—is selling good assets too early. I’ve always believed that selling is usually the mistake, not holding. So unless you can clearly move that money into something that gives you a better return, with the same or less risk, it doesn’t make sense to exit what you already have.

Jorge Vazquez · Answer

I actually wrote an article breaking this exact situation down, but BP won’t let me share links here. If you want, feel free to inbox me and I’m happy to send it over. Short version from my own data owning 40 properties and managing about 300 in Florida: you have to stay proactive every six months on taxes and insurance or they will quietly eat you alive. The 15-year loan is honestly the biggest squeeze here. It feels smart at first, but long term you usually want the flexibility and write-off of a 30-year, especially if appreciation is the real play and you don’t plan to sell. I also strongly believe conditions improve this year, but tenant retention is everything. I’ve raised rents very minimally, sometimes only $10, but I raise something every renewal to keep pace. After 20+ years doing this, it feels like we’re finally nearing the end of the cheap rent + expensive insurance phase of the cycle.

Where am I going wrong? Costs increasing and rents flat

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