The Tampa Bay area, known for its beautiful coastlines and vibrant community, is a magnet not only for the individuals we talked about in the last article (see Tampa Real Estate: A Bright Horizon for Investors in 2024), but for real estate investors. However, those looking to profit from long-term rentals face a common hurdle: achieving positive cash flow. Let’s talk about the realities of the Tampa rental market and a to overcome these financial challenges.
Understanding the Cash Flow Challenge
In the quest for passive income through property investment, cash flow is king. But in Tampa Bay, the crown doesn’t come easy. After accounting for operating expenses (PM fee, taxes, and insurance), mortgage payments, and essential reserves (capex, repairs, and vacancy), many investors find themselves in the red on deals. The numbers can be discouraging with the monthly rental income often swallowed by the costs of maintaining and managing a property. The two biggest changes in the last year (2023) have been interest rates skyrocketing and property insurance reaching well above national average. With rents, and wages, not going up nearly enough to compensate for that, we investors have to be creative.
The Down Payment Strategy
One approach used a lot this year to circumvent this issue is through a substantial down payment. By placing 30-40% down, investors can tip the scales toward a slight cash flow. It’s a hefty sum upfront, but this method has an advantage. It’s a relatively simple and straightforward strategy. A larger equity stake from the get-go means smaller loan payments and a better chance of staying afloat financially if we enter into a recession and rents sink.
Refinancing Later
We are anticipating a future dip in interest rates, so when rates fall, refinancing can lead to lower mortgage payments and the opportunity to cash out some equity, all while retaining the property and its income potential. Investors are playing the long game. The deals are when everyone is fearful and afraid of rates. When they do drop, housing will likely increase again. REMEMBER – you can negotiate interest rates at any time down the road, but you can only negotiate purchase price once.
Why Tampa Bay for Long-Term Rentals?
Despite the cash flow conundrum, Tampa Bay’s rental market does remain attractive. 26% of all closings in Tampa in 2023 were from investors. It didn’t fluctuate much from 2022. The region’s population is growing, the economy is diversifying, and its status as a tourist destination is steady. You might be thinking “If cash flow is king, why shouldn’t I go to Indiana or Ohio for better cash flow?”
That’s a good question, and the answer is that your ultimate goal is to grow your money over time. Cash flow is a big factor in that, but most investors get wealthy from appreciation – not cash flow. Tampa Bay is truly a long term play for investors who want strong long term growth. Your cash flow will be low initially, but rents will continue to grow along with your properties worth. And don’t forget, you’re tenants are still paying off your mortgage each month! Ironically, that’s an often-overlooked and underestimated bonus.
If you’re looking to leverage 75k and build a cash flow empire through BRRRR to quit your job in 2 years… I have some bad news. So are thousands of others and it’s impossible in the current market.
Let’s Talk!
If you’re ready to talk more about Tampa Bay real estate, head over to theinvestoragent.io. Call, email, zoom, or text, I’m here to help you plant those seeds!