Why Lower Cash Flow Could Be Worth It in the High-Appreciating Tampa/St. Pete Market

Question

Hey BiggerPockets community!

I wanted to discuss a topic that's been on my mind lately – the idea of accepting lower cash flow to capitalize on the high appreciation potential in the Tampa and St. Petersburg, FL market. While conventional wisdom may lean towards prioritizing cash flow, recent data shows that there's a strong case for focusing on appreciation in our local market.

High Appreciation Rates in Tampa/St. Pete:
Over the past few years, the Tampa/St. Pete market has experienced significant appreciation, with some areas seeing double-digit annual growth. According to Zillow, from 2020 to 2021, Tampa and St. Petersburg experienced a 17.6% and 18.1% increase in median home values, respectively. Now I know this was an abnormal market, however we are currently on pace to experience upwards of 12% this year. This trend has been fueled by a strong local economy, job growth, and a consistent influx of new residents. Emphasis on the new residents part.

Why Investors May Accept Lower Cash Flow:

• Long-term gains: Though lower cash flow may result in less immediate income, the substantial appreciation potential can yield significant long-term returns. In a market like Tampa/St. Pete, investors may be willing to forgo short-term cash flow for the chance at impressive capital gains.
• Portfolio diversification: For investors with a diverse portfolio, a high-appreciating property in Tampa/St. Pete can balance out investments with a heavier focus on cash flow. This diversification can reduce overall risk and offer varying degrees of returns.
• Lower management burden: High appreciation investments often require less active management than cash flow properties, allowing investors to focus on other opportunities or enjoy a more passive investment strategy.
• Florida tax benefits: Florida offers attractive tax incentives for residents, with no state income tax and lower property tax rates compared to many other states. While this isn't the main driver for real estate investment, it's a noteworthy perk for those considering a high-appreciating property in the Tampa/St. Pete area. Remember, I am not a legal tax representative, so consult a professional for advice on tax benefits.

Conclusion:
While cash flow remains an essential aspect of real estate investing, it's worth considering the potential long-term benefits of capitalizing on the high appreciation rates in the Tampa and St. Petersburg, FL market. By accepting lower cash flow, investors may access significant long-term gains and diversify their portfolios in a growing market.

What are your thoughts on accepting lower cash flow for high appreciation potential in Tampa/St. Pete? Let's share our experiences and discuss the best strategies for success in our local market!

Calvin Pringles · Answer

Sounds like you've got it figured out! Awesome :)

Michael Haynes · Answer

Hello Calvin Pringles in St. Petersburg, one other thought...Because of the new Rules for Homeowners Insurance in Florida where the Governor signed into Law that anyone using Citizens Insurance will be required to pay for Flood Insurance, which is a Federal program. And every person with a Mortgage in a descending scale starting with $600,000 of property value will have to buy Flood Insurance while their private insurance doubles and triples in price per year. Can you see what is going to happen? Hello?! 50% of Florida residents are Retired, mostly on SSI and Fixed Income investments like useless 405 plans. Grandad died and Grandma at 65 and older is alone in a home with a Mortgage payment every month and now she has to find thousands of extra dollars to pay the increases in Insurance, plus Flood, even if she does not live in a Flood Zone. What is going to happen?? They all will be forced to SELL, SELL, SELL and RENT or leave the State. Talk about setting something up for the Banksters and Lawyers and Real Estate Agents and all the Vultures to feast on! The time to save up all your Cash to buy everything you find with one of these Motivated Seller Situations that are going to happen by the tens of thousands within the next year or two is here. Will there be a 20% drop in Florida home values? Try 30 or 40% in special pre-foreclosure situations. That is why I paid Cash for my strategic Townhome in a small, like new, 17 unit Community with low HOA, on the top of a Hill, the Water Shed Point in a Hurricane, with no trees to fall down on my Home or limbs to blow through the windows. Gated Community with Pool, behind Home Depot and Walmart, just up from Hwy 60 on the newest side, the North side. I am not on the outside, corner building, I am between two Townhomes, two story, cinder-block construction and the HOA just paid one million dollars to put on all new roofs. I'm good to go while I Self Insure, for twenty years, while I travel every month or two.

Michael Haynes · Answer

Hello Calvin Pringles in St. Petersburg, You are an Agent and your talking like all the Hedge Fund guys and Brokers who "Sell" Stock stuff that does not work to all the uninformed. "Buy and Hold for the Longterm." "Diversification." "Timing does not work." "Set up a 40/60% Investment Plan." "Technical charting does not work, only Fundamental Investing with us making an average of 8% with Bonds and 10% with Stocks over a 50 year holding period is the way to go to Retire." When I started 35 years ago with Cash to buy Financed by the Owner for the first year or two, Duplexes and Houses to Rent, I was counting on $100 to $200 per Month, per Door after PITI and all the unknown repairs and charges that show up. My point is that people don't know how to Trade with their Money and they look towards Fixed Income Investing vehicles with low or no returns. Real Estate for me was my Buy and Hold for the Longterm part of my Diversification. Three years ago I sold my four Commercial lots on South Dale Mabry Hwy. that I held for 20 years with one house that I rented for $1000 a month. I paid $175,000 Cash for a 1500 sq. foot, 3/3 Townhome with garage and pool in a 17 unit Community in Valrico. A year later my neighbor paid $320,000 for the one next door. How did this happen? I followed the Real Estate Cycle and caught the start of the Covid demand for Townhomes and Houses in the Brandon area that had swimming pools for the kids to do something during the shutdown. It was the time when everything was selling for more than asking price, in Cash. Do you think that you can buy anything in St. Petersburg now and do anything similar to this in the next 20 years? Three years ago Robert Kiyosaki, "Poor Dad, Rich Dad," said he had 33,000 Apartments and he was just Selling and the only thing he is Buying is Bitcoin and Gold. The one thing I learned from him was that, "Daily Cash Flow is King." That is why I planned to Daytrade the ES Futures on my laptop for my retirement. The rest of my properties are in Brazil and I am fixing them all up to sell off one at a time and reinvest.

Calvin Pringles · Answer

All solid points, Dillon. Not only should other investors concern themselves with appreciation overtime, but I think one solid point that is missed often is the tax incentives of owning real estate and being able to hedge inflation. Cost segregation is also another avenue that could make something like this make a lot of sense, even in a negative cash flow market.

Calvin Pringles · Answer

You bring up a valid point about the risks associated with purchasing a negative income rental property, especially when you can get a 4% return from a 2-year bond without any hassle. However, people often invest in real estate for a variety of reasons, including diversification through appreciation. We do not foresee Tampa being affected by a 20% downturn due to the high demand, and limited inventory that is supplied by our market.

Many of the stats provided by our local MLS https://www.stellarmls.com/res... go against the national trend of negative growth.

Dillon Cook · Answer

This is something I've been thinking a lot about as well.  Cash flow generally does not exist on year one.  You can buy a large rehab deal, but you'll still need 6+ months to get tenants out, renovate, and refi.  Anything close to turnkey or light cosmetics just won't cash flow for probably a couple years.  The goal is to at least safely break even and hold out over inflation and rent growth.

@Michael Haynes, you would still invest in real estate to hedge against inflation.  If one thinks the interest rates will come down again - even by 1%, they'll probably capitalize on increased values further and/or be able to refi to actually cash flow quicker.

Michael Haynes · Answer

Hello Calvin Pringles from St. Petersburg, when a 2yr. Bond will give you 4% without any work, "Tenants," why would you even think to buy a negative Income Rental property and take a chance that we are not starting a 20% downturn in property values in Florida?

Why Lower Cash Flow Could Be Worth It in the High-Appreciating Tampa/St. Pete Market

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