Austin Tax Appraisal - Heart ache :( future strategy??

[Prash Manohar]

Hi All,

This question might have been asked before. I bought my rental property in 2021 and was saved by homestead tax (previous owner had it) so ended up cash flow positive for 2021. However now for 2022, HS is no longer applicable (which is not a surprise) but honestly i didn't expect a 60% appraisal. I am expecting my property tax bill to double from last year and this would make me CF negative for 2022. I am looking for some guidance here on how to mitigate this in longer term? I understand one way is to increase rents which I will later this year but my worry is if Austin home prices continue to appreciate, mortgage rates are sky high, inflation is crappy, property taxes go up, what else can i do other than raising rents?

Thanks

[Bryan Noth]

@Prash Manohar oh the can of worms you opened lol.  

If the median home price in Austin hits $1M in the next few years then I would say, with a high degree of confidence, that many owners would happily count that appreciation as a phenomenal investment. If cash flow covers the three Ms (Mortgage, Maintenance, and Management) then appreciation only needs to surpass taxes to net a positive ROI. If it does not cover those costs then you can sell to the many willing buyers in the MSA.

Cash flow is tight in Austin, but it's also tight in the vast majority of other markets.  80-85% of home purchases  in the Austin MSA are still homeowners and the remaining 15-20% or purchases are made by investors.  As the ratios become less favorable for investors that will slow activity but the demand is still quite strong and driven by genuine growth trends.  

In my opinion, interest rates are crippling buying power (for investors and homebuyers) but that honestly only serves to push rental demand higher.  This may be the silver lining for your property with stronger than average rent increases.  However, it may be after year 3 that you see your metrics stabilize.