Rental Property Investor · Santa Barbara, CA · Member since 2016 · 75 posts · 40 votes
Hi, I am comparing single family home rentals in a few cities (Houston, Kansas City, maybe Memphis) for my first rental house. Researching revenue and costs for pro-forma sheets....finding property tax and insurance are much higher in Houston than other cities--is my information good? Is this normal, and if so, how do you keep it from killing your cash flow, as compared to other cities? Thanks!
Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
10y
Coming from a biased TEXAN - it's just the cost of doing business. If a deal does not work when factoring in those numbers then it is not a deal. I only have rentals in Tx and they ALL perform well.
Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
10y
Coming from a biased TEXAN - it's just the cost of doing business. If a deal does not work when factoring in those numbers then it is not a deal. I only have rentals in Tx and they ALL perform well.
You will have to pay those anywhere you buy. Like Rocky stated, it's part of the cost of doing business. Take the numbers provided, verify them and then make a decision based on the overall numbers and locations that you find beneficial to invest in. Everyone has reasons for specific areas and the numbers have to work for that location. Find a location that you are comfortable with and has returns that meet your goals/needs and move forward.
Houston, TX · Member since 2016 · 71 posts · 23 votes
10y
Yes, taxes and insurance kill a lot of potential deals, but as Rocky said, that just means it wasn't a deal. Being in Coastal Zone 2 or an area where you need flood insurance increases insurance premiums here. It's hard to find deals on the MLS for that exact reason.
Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
10y
@Andrew R. You are correct. Property taxes in Texas are higher than other states, And insurance in Houston is also pretty high. Not sure about other cities regarding insurance. That may just be a Houston issue.
It can get particularly ugly if you're buying in a MUD because that can add $1300 or so to your tax bill. I had a listing for a home in the Bear Creek area last year that was in a MUD. The total taxes were something like $4800, which is $2000 more than my taxes in the city, and my home is worth double that one.
Investor · Montgomery, TX · Member since 2016 · 8 posts · 2 votes
10y
My experience has been that the taxes can have a big impact on cash flow but you really have to look at the tax rate for each specific deal as opposed to just a general average for the area. Total tax rates can vary by 1% or more for houses that are only a few blocks away and that 1% has a big impact on cash flow.
Real Estate Broker / General Contractor / Property Manager · Kansas City, MO · Member since 2010 · 395 posts · 425 votes
10y
@Andrew R. this is just one more reason why markets similar to Kansas City are such good, cash flowing areas. Taxes are low (on the Missouri side) and insurance rates are low compared to other markets.
Sheffield, IL · Member since 2012 · 85 posts · 27 votes
10y
@Andrew R. I have properties in Houston and Memphis. Costs are higher across the board in Houston and so are the rents. Would be glad to talk about my experiences in those two places.
Sacramento, CA · Member since 2014 · 513 posts · 319 votes
10y
@Andrew R., yes taxes and insurance costs can kill your cash flow if those costs are not estimated properly BEFORE you buy. However, like you pointed out, some areas are higher than others. In Cali, property taxes are a set fee - unless you petition the tax assessor for a re-assessment of value. Insurance costs can be a little more flexible if you raise your deductible, bundle your properties under one carrier to qualify for multi-discount and outfit your units with preventative measures to cut risk. For example, install a locked gate around a pool; add a security system, rent only to non smoking applicants, etc.
But @Rocky V. hit the nail on the head - you make your money on the purchase, not by saving nickels and dimes on expenses.
Rental Property Investor · Redwood City, CA · Member since 2015 · 51 posts · 12 votes
10y
I don't think the issue is one expense category. For me the right approach is to build a model based upon TUMMI -- Taxes, Utilities, Mortgage, Maintenance and Insurance -- the numbers need to work based upon the specific property. Hope this helps.