Depending on where
the property is, paying property taxes on real estate you own can be a
curse or a blessing. For
real estate investors,
it’s normally the second biggest
fixed cost they need to consider, next to their monthly mortgage
payments, when calculating potential cash flow on investment properties.
Although they can
be averaged out at the state or metro level, setting property tax rates
is
usually a function of city or county government, since the money
collected goes to pay for public services, such as police and fire
departments. With a
wealth of
new data added to its database, RealtyTrac recently released the results of its
first-ever study of property taxes, called the "U.S. Property Tax Rates Report
for 2014."
“The highest tax
rates are on people who have owned between five to 10 years and 10 to 15
years,” says Daren Blomquist, vice president at RealtyTrac. “Those tend
to be the people who
are still feeling the worst effects of the housing bubble.”
In determining
which areas had the highest and lowest tax rates, RealtyTrac relied on two
metrics, the average property taxes paid and the effective tax rate for the
more than 1,000 counties studied nationwide with populations equal to or
exceeding 100,000, accounting for a majority of the U.S. population.
In calculating the
effective tax rate, RealtyTrac took the average tax rate for
single-family
homes (SFRs) in the particular county during 2014 and divided it by the average
estimated value of single family homes at year-end 2014.
As Blomquist
explains it, “We thought taking the tax rate as a percentage of the property’s
market value is a more consistent methodology to compare tax rates in different
markets.”
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finance industry for over 20 years. Our Investment Property Strategists
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• educating you on positive cash flow and the ability to pay your mortgage off years in advance
• saving you thousands of dollars in interest
• supporting you in the decision on which property to buy
• assisting in the organizing of your finances, if required
• preparing you for settlement of contracts
• liaising with other professional advisers on your behalf if required.
Our Strategists specialise in delivering quality positive cash flow
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In
our practice, almost on a daily basis we find ourselves
giving investment advise to clients. Our focus tend to be geared to the
potential return on investment and the ease of renting the unit to the
best possible tenant. What about the potential cash flow? is this
important? Recently I read this article on
PropertyManager.com from Appfolio Property Manager, Posted on 29. Nov, 2012 by
Leonard Baron. It portrays a clear picture of what
cash flow really means.
"If you are thinking about buying some rental properties as
investments, you should probably understand how to project cash flows
and evaluate the investment returns you hope to achieve on your hard
earned invested cash equity.
There are really two types of returns that we can earn on investment
property, first is appreciation in value which is the most common hoped
for return. Secondly, and much more important but generally overlooked
by investors, is the cash flow picture the property will generate.
The vast majority of investors buy real estate with the hope that
it will go up in value. This is really a big mistake because many
properties, particularly the prize “location, location, location”
properties have corresponding negative cash flows on operations that may
negate any true increase in wealth from one’s long term appreciation in
value.
So a savvy investor needs to look at the cash flow picture and buy
properties with positive cash flows, not negative cash flows. As an
example of this in San Diego, one could buy a fancy downtown condominium
for $500,000 which would rent for about $2,300 per month. That rent,
minus all the maintenance expenses, HOA fees, insurance, property taxes,
and mortgage payment would have a deficit on cash flows of about
($1,000) per month, or ($12,000) per year.
So while a buyer is hoping some appreciation in value will earn him
or her a fair rate of return, that appreciation has to additionally
compensate for all the money he has to take out of his savings to cover
the negative cash flows. Those negative cash flows, on this example,
could span several decades and hundreds of thousands of dollars before
the property turns positive.
Alternatively, there are many properties that cash flow positive
from day one as an investment. A moderately priced house or condominium
unit, only a few miles away from downtown in the $150,000 price range,
might generate $1,200 per month in rent and positive cash flows of $225
per month. That’s $2,700 per year of positive cash flow. As a side note –
the appreciation in value, over the long term, will probably be similar
on both properties anyhow. So why not go for cash flow plus
appreciation in value!
To calculate a cash on cash return, we divide that $2,700 positive
cash flow by the cash equity we invested, maybe $40,000 on the $150,000
property for a cash on cash investment return of 6.75% on our money. And
that’s a really good deal! Especially compared to the fancy prize
condominium that might generate a negative (8.5%) return on our invested
equity.
There is more guidance in the Investment article noted below if you
desire to study further. However, as a long term investor, I can assure
you that positive cash flow properties, so properties that pay all the
bills and provide a rate of return on your money, are much better
investments than negative cash flow fancy prize properties that just
drain money from your bank account. Hopefully you’ll understand this
concept before you buy that prize!"
- See more at: http://www.rentcare.net/_blog/Blog/post/cash_flows/#sthash.wsv5bkfo.dpuf
In
our practice, almost on a daily basis we find ourselves
giving investment advise to clients. Our focus tend to be geared to the
potential return on investment and the ease of renting the unit to the
best possible tenant. What about the potential cash flow? is this
important? Recently I read this article on
PropertyManager.com from Appfolio Property Manager, Posted on 29. Nov, 2012 by
Leonard Baron. It portrays a clear picture of what
cash flow really means.
"If you are thinking about buying some rental properties as
investments, you should probably understand how to project cash flows
and evaluate the investment returns you hope to achieve on your hard
earned invested cash equity.
There are really two types of returns that we can earn on investment
property, first is appreciation in value which is the most common hoped
for return. Secondly, and much more important but generally overlooked
by investors, is the cash flow picture the property will generate.
The vast majority of investors buy real estate with the hope that
it will go up in value. This is really a big mistake because many
properties, particularly the prize “location, location, location”
properties have corresponding negative cash flows on operations that may
negate any true increase in wealth from one’s long term appreciation in
value.
So a savvy investor needs to look at the cash flow picture and buy
properties with positive cash flows, not negative cash flows. As an
example of this in San Diego, one could buy a fancy downtown condominium
for $500,000 which would rent for about $2,300 per month. That rent,
minus all the maintenance expenses, HOA fees, insurance, property taxes,
and mortgage payment would have a deficit on cash flows of about
($1,000) per month, or ($12,000) per year.
So while a buyer is hoping some appreciation in value will earn him
or her a fair rate of return, that appreciation has to additionally
compensate for all the money he has to take out of his savings to cover
the negative cash flows. Those negative cash flows, on this example,
could span several decades and hundreds of thousands of dollars before
the property turns positive.
Alternatively, there are many properties that cash flow positive
from day one as an investment. A moderately priced house or condominium
unit, only a few miles away from downtown in the $150,000 price range,
might generate $1,200 per month in rent and positive cash flows of $225
per month. That’s $2,700 per year of positive cash flow. As a side note –
the appreciation in value, over the long term, will probably be similar
on both properties anyhow. So why not go for cash flow plus
appreciation in value!
To calculate a cash on cash return, we divide that $2,700 positive
cash flow by the cash equity we invested, maybe $40,000 on the $150,000
property for a cash on cash investment return of 6.75% on our money. And
that’s a really good deal! Especially compared to the fancy prize
condominium that might generate a negative (8.5%) return on our invested
equity.
There is more guidance in the Investment article noted below if you
desire to study further. However, as a long term investor, I can assure
you that positive cash flow properties, so properties that pay all the
bills and provide a rate of return on your money, are much better
investments than negative cash flow fancy prize properties that just
drain money from your bank account. Hopefully you’ll understand this
concept before you buy that prize!"
- See more at: http://www.rentcare.net/_blog/Blog/post/cash_flows/#sthash.wsv5bkfo.dpuf
In
our practice, almost on a daily basis we find ourselves
giving investment advise to clients. Our focus tend to be geared to the
potential return on investment and the ease of renting the unit to the
best possible tenant. What about the potential cash flow? is this
important? Recently I read this article on
PropertyManager.com from Appfolio Property Manager, Posted on 29. Nov, 2012 by
Leonard Baron. It portrays a clear picture of what
cash flow really means.
"If you are thinking about buying some rental properties as
investments, you should probably understand how to project cash flows
and evaluate the investment returns you hope to achieve on your hard
earned invested cash equity.
There are really two types of returns that we can earn on investment
property, first is appreciation in value which is the most common hoped
for return. Secondly, and much more important but generally overlooked
by investors, is the cash flow picture the property will generate.
The vast majority of investors buy real estate with the hope that
it will go up in value. This is really a big mistake because many
properties, particularly the prize “location, location, location”
properties have corresponding negative cash flows on operations that may
negate any true increase in wealth from one’s long term appreciation in
value.
So a savvy investor needs to look at the cash flow picture and buy
properties with positive cash flows, not negative cash flows. As an
example of this in San Diego, one could buy a fancy downtown condominium
for $500,000 which would rent for about $2,300 per month. That rent,
minus all the maintenance expenses, HOA fees, insurance, property taxes,
and mortgage payment would have a deficit on cash flows of about
($1,000) per month, or ($12,000) per year.
So while a buyer is hoping some appreciation in value will earn him
or her a fair rate of return, that appreciation has to additionally
compensate for all the money he has to take out of his savings to cover
the negative cash flows. Those negative cash flows, on this example,
could span several decades and hundreds of thousands of dollars before
the property turns positive.
Alternatively, there are many properties that cash flow positive
from day one as an investment. A moderately priced house or condominium
unit, only a few miles away from downtown in the $150,000 price range,
might generate $1,200 per month in rent and positive cash flows of $225
per month. That’s $2,700 per year of positive cash flow. As a side note –
the appreciation in value, over the long term, will probably be similar
on both properties anyhow. So why not go for cash flow plus
appreciation in value!
To calculate a cash on cash return, we divide that $2,700 positive
cash flow by the cash equity we invested, maybe $40,000 on the $150,000
property for a cash on cash investment return of 6.75% on our money. And
that’s a really good deal! Especially compared to the fancy prize
condominium that might generate a negative (8.5%) return on our invested
equity.
There is more guidance in the Investment article noted below if you
desire to study further. However, as a long term investor, I can assure
you that positive cash flow properties, so properties that pay all the
bills and provide a rate of return on your money, are much better
investments than negative cash flow fancy prize properties that just
drain money from your bank account. Hopefully you’ll understand this
concept before you buy that prize!"
- See more at: http://www.rentcare.net/_blog/Blog/post/cash_flows/#sthash.wsv5bkfo.dpuf
I
was reading an rental investment advertisement with great return in
title, and I am drawn to see how great the investment can be.
I’ve analyzed a lot of properties, and I can tell you right now that
if you adhere to the cash flow formula below, you will be shocked after
owning the property
Annual rent – Annual Mortgage – 1 month’s rent for repairs & maintenance = cash flow
Interesting enough, this is
exactly what the rental investment article uses to calculate the rate of
return. What I can see missing are the taxes, utility, insurance cost,
vacancy cost, management fee (unless of course you want to have all the
headache of managing the property yourself). There are also strata fee
or HOA fee if you are buying a condo, which usually go up year by year.
There are also some other misc fee like rent concession, accounting
fee, etc.. just to be conservative. If you rely on this formula to buy
properties, you are entering the trap of bankruptcy sooner or later.
The article also assumes “A 30 year mortgage at 3.5% interest and a
65 per cent LTV (so 35% downpayment)”, that is probably what most retail
home owner pays to buy property. But as an investor you will want to
maximize your return by putting as little down as possible. Unless the
cost of borrowing the money is actually higher than your rental return,
than it does not really make sense to utilize a mortgage on the
investment. You can always make a property positive cash flow if you
put enough down payment, but your cash on cash return may be less than a
GIC, you may as well put the money in your bank account. A truly
positive cash flow investment property should be cash flow positive even
when you buy with all cash, and that is when you can decide to leverage
a low interest mortgage to boost your return if you desire.
If you’re looking for real estate advice be very, very careful when it comes to who you’re listening to.
Anyone who invests in real estate can tell you without a doubt that the
actual numbers, on a performing piece of investment real estate, look
nothing like what the article shows.
- See more at: http://epirealestategroup.com/blog-oct-6-2013/#sthash.YClKzEIk.dpuf
I
was reading an rental investment advertisement with great return in
title, and I am drawn to see how great the investment can be.
I’ve analyzed a lot of properties, and I can tell you right now that
if you adhere to the cash flow formula below, you will be shocked after
owning the property
Annual rent – Annual Mortgage – 1 month’s rent for repairs & maintenance = cash flow
Interesting enough, this is
exactly what the rental investment article uses to calculate the rate of
return. What I can see missing are the taxes, utility, insurance cost,
vacancy cost, management fee (unless of course you want to have all the
headache of managing the property yourself). There are also strata fee
or HOA fee if you are buying a condo, which usually go up year by year.
There are also some other misc fee like rent concession, accounting
fee, etc.. just to be conservative. If you rely on this formula to buy
properties, you are entering the trap of bankruptcy sooner or later.
The article also assumes “A 30 year mortgage at 3.5% interest and a
65 per cent LTV (so 35% downpayment)”, that is probably what most retail
home owner pays to buy property. But as an investor you will want to
maximize your return by putting as little down as possible. Unless the
cost of borrowing the money is actually higher than your rental return,
than it does not really make sense to utilize a mortgage on the
investment. You can always make a property positive cash flow if you
put enough down payment, but your cash on cash return may be less than a
GIC, you may as well put the money in your bank account. A truly
positive cash flow investment property should be cash flow positive even
when you buy with all cash, and that is when you can decide to leverage
a low interest mortgage to boost your return if you desire.
If you’re looking for real estate advice be very, very careful when it comes to who you’re listening to.
Anyone who invests in real estate can tell you without a doubt that the
actual numbers, on a performing piece of investment real estate, look
nothing like what the article shows.
- See more at: http://epirealestategroup.com/blog-oct-6-2013/#sthash.YClKzEIk.dpuf
I
was reading an rental investment advertisement with great return in
title, and I am drawn to see how great the investment can be.
I’ve analyzed a lot of properties, and I can tell you right now that
if you adhere to the cash flow formula below, you will be shocked after
owning the property
Annual rent – Annual Mortgage – 1 month’s rent for repairs & maintenance = cash flow
Interesting enough, this is
exactly what the rental investment article uses to calculate the rate of
return. What I can see missing are the taxes, utility, insurance cost,
vacancy cost, management fee (unless of course you want to have all the
headache of managing the property yourself). There are also strata fee
or HOA fee if you are buying a condo, which usually go up year by year.
There are also some other misc fee like rent concession, accounting
fee, etc.. just to be conservative. If you rely on this formula to buy
properties, you are entering the trap of bankruptcy sooner or later.
The article also assumes “A 30 year mortgage at 3.5% interest and a
65 per cent LTV (so 35% downpayment)”, that is probably what most retail
home owner pays to buy property. But as an investor you will want to
maximize your return by putting as little down as possible. Unless the
cost of borrowing the money is actually higher than your rental return,
than it does not really make sense to utilize a mortgage on the
investment. You can always make a property positive cash flow if you
put enough down payment, but your cash on cash return may be less than a
GIC, you may as well put the money in your bank account. A truly
positive cash flow investment property should be cash flow positive even
when you buy with all cash, and that is when you can decide to leverage
a low interest mortgage to boost your return if you desire.
If you’re looking for real estate advice be very, very careful when it comes to who you’re listening to.
Anyone who invests in real estate can tell you without a doubt that the
actual numbers, on a performing piece of investment real estate, look
nothing like what the article shows.
- See more at: http://epirealestategroup.com/blog-oct-6-2013/#sthash.YClKzEIk.dpuf
