Rental rates not catching up with appreciation/property taxes

[Fiena Mohamed]

Hello!

I have a SFR just off Mopac in North Austin. It is rented out and managed by a property management company since I live out-of-state. Purchased in 2014, the property has appreciated by 25%, so the property taxes have increased significantly but the rental rates have been flat. With a mortgage, this property is now cash-flow negative.

The new Apple HQ will be 15 minutes away, thus I think this property is positioned well for further appreciation. I would like to hold on to it for the potential long-term appreciation, and the only way I can think of to mitigate the cash-flow problem would be to pay it down and get rid of the mortgage, generating 5-7% return for now until the property taxes rise again. 

Looking for advice here and suggestions. Also, Austin experts, why has the rental rates been flat in the area? What is the issue with the rental market? Also, what is the general investing strategy in Austin, considering the property taxes are not capped? 

Thank you in advance.  

[David Ivy]

@Fiena Mohamed

Since 2014, median rent for a single-family home in Austin has increased roughly 10%. It sounds like you might have a condo rental. Median rent for a condo in Austin increased 7% between 2014-2018.

Here's a graph for SFR rents in Austin:

Here's the same chart, but for condo rents in Austin:

As you already know, median SFR and condo prices have increased at a MUCH more aggressive rate over the same period. In this kind of market, it's practically impossible to increase rent enough year over year to keep up with the increase in property tax due to appreciation.

It sounds like cash flow is very important to you. Are you happy with the ROI you'd achieve on the sale due to the cash flow to date and the equity you've built thus far via appreciation and loan pay-down? This may be a situation where you'd want cash out on your appreciation/growth investment and move the proceeds to a market with the cash flow profile you're targeting. It sounds like you've captured some nice equity from several years of strong appreciation.

That said, there are ways to maximize cash flow. @Stephen Stokes has some good tips on increasing your chances of regular rent increases and avoiding costly vacancies. Aside from that, you need to shrewdly control expenses. Do you protest the county's appraised value every single year? @Danny Webber has other good suggestions. Is the ongoing property manager absolutely necessary, or can you manage the property remotely once you have a tenant in place? Do you need the property manager primarily just to help with leasing?