Texas property taxes , Portfolio appreciation and lowering rents, hold on or sell?

Question

Hi,  Any advice  I live in Texas, my portfolio is increasing in value and so are my property taxes This is despite contesting them yearly. at the same time recent new construction of Class A multifamily properties  have pushed my rents down.   Should I sell properties or hold on until rents go up again. Any one experiencing similar frustrations? Any advice? Thank you

Ravi Kaku · Answer

I think a lot of Texas investors are dealing with the same issue right now. It's really a combination of rising property taxes, higher insurance costs, and softer rents from the amount of new Class A multifamily supply coming online.

I've seen investors become much more focused on the difference between a property being cash-flow positive today versus having a strong long-term wealth-building profile. If the property was purchased well, has favorable existing debt, and still produces reasonable cash flow, it may make sense to hold through the current rent environment rather than sell simply because margins have tightened.

On the other hand, if taxes, insurance and current rents have changed the economics substantially, it's worth looking at each property individually. Sometimes the equity tied up in a property could be redeployed into something with a better risk-adjusted return.

I'd look at the decision based on the property's current equity, actual cash flow after all expenses, existing interest rate/debt, expected rent growth, and what you could realistically earn on the equity if you sold.

One thing I've definitely noticed is that the Texas rental market today requires much more conservative underwriting than it did a few years ago. The combination of taxes, insurance and financing costs can turn what looked like a great cash-flowing rental into a pretty thin-margin investment.

Alyssa Marquez · Answer

That's certainly not an easy position to be in as you see the cost side move up while your rental growth might be facing the drag from new supply. I would be leaning towards analyzing the property one at a time, not doing this across an entire portfolio. If a property still brings back what I find to be a acceptable cap rate after accounting for taxes and very cautious rental assumptions, maybe I can still hold. But in properties where you are 50%+ equity and it just isn't performing well against that capital, I'd be at least looking at selling and taking that capital elsewhere.

Caleb Brown · Answer

What would you do with the equity if you sold? Selling properties is part of the game but you need a vehicle to put them into. You can start analyzing deals and running numbers if you sold. If reinvesting doesn't beat your current returns I would keep.