Property taxes eventually eating into profits?

[Jake Recz]

Hello guys just wanna throw this out there to see what you think. Let's say I buy a two family house that generates about $800 profit every month. That's after all expenses are paid. The taxes keep going up yearly. Aren't those taxes going to go up enough in let's say 20 years that the property is gonna stop generating cash flow? What happens then? This seems absurd. Am I missing something here?

[Jon Holdman]

Yep, taxes are going to go up.  As is insurance, maintenance, utilities, legal costs, etc., etc., etc.  Over time, the rents will, too.  Hopefully, over time it all averages out and your cash flow continues.  If you buy into the 50% rule, which says that 50% of gross rents go to all expenses (including taxes, but not the principal and interest part of your payment) then your cash flow will increase over time.

Of course nothing locks all these factors together.  So, no guarantee that rising expenses translate into rising rents.

I assume when you say $800 a month you're paying cash.  It would be a pretty exceptional property that could generate that much true cash flow with a mortgage.