Negative cash flow sucks!

This is the other part of an article about what to do when you are have a cash flow property with your rental property.

If you want to read the first part of the article, Click here to review the article.

If you are considering selling your Oklahoma City rental properties, don’t do it until you at least give it some really careful thought.

The prior article discussed what you can do if you have high maintenance or vacancy costs.

Either of those will definitely put you into negative cash flow.

The other article was about active measures you take to fix a cash flow problem.  This is more about mindset.  That is, how you view the property.

Reason #3: If You have little or no Equity in the Property.  

A general rule of thumb is that if you have little equity, your mortgage payments are likely to be so high they will eat up all net operating income (rent – expenses).

The other side of that problem is that when equity is low, you are likely to be in a situation in which you will have to pay to sell the property.

So many people decide to hold onto a property until they have built up enough equity in a property to sell it without having the bring cash to the closing.

It’s when you combine the effects of debt reduction and appreciation, both of which are discussed below, that you really start wracking up equity in your property.

All the Other Reasons

Tax Write Offs

The tax benefits of owning rental property are significant.

You can write off mortgage interest, depreciation, expenses, property tax, insurance, and many other expense items.

Debt Reduction

Every month you make a mortgage payment, part of that mortgage payment goes to paying down the principal of the mortgage loan.

If that’s $200 per month, by the end of the year you have wracked up $2,400 in debt reduction.

That’s nothing to sneeze at!

The OKC Metro Rental Market is Strong

The Oklahoma City metro area economy has been held out nationally as model of success. But it certainly hasn’t always been that way. In the mid-1980’s, Oklahoma City was in the midst of an oil bust. People were streaming out the city because there were no jobs. This was the time of the notorious Penn Square Bank failure. The local economy was somewhat like that of current day Detroit.

A friend of mine who got started in real estate investing at this time bought up as many houses as he could, because he was able to buy them for $5,000. He now owns almost 400 single-family homes.

The economy limped along through the early 1990’s. It was in 1993 that the City of OKC embarked on the first of its Metropolitan Area Projects (MAPs). These were projects with the goal of raising the quality of life in the Oklahoma City area. MAPs is widely seen as the catalyst for the revitalization of Oklahoma City.

Since the 1980’s, the economy of Oklahoma City has become less dependent upon oil and gas. Oklahoma City has one of the lowest unemployment rates in the US. Here are some of the highlights:

• A growing biomedical technology campus at the Oklahoma University Health Science Center,
• Several major US oil and gas companies are headquartered here, including Devon, Chesapeake, and Sandridge,
• A large number of state and federal offices,
• Some manufacturing and fabrication facilities,
• Some corporate offices, such as Sonic Corporation, Express Personnel, etc.,
• Tinker Air Force Base,
• An NBA franchise (Oklahoma City Thunder),
• And many others.

These businesses keep the economy moving forward.

Rents have gone up, and keep going up. With the tight credit for home buyers, most people can’t buy a home because they don’t qualify to get a mortgage. That has pushed up rents.

Appreciation

On average, every year real estate becomes a little more valuable.

Real estate is a good hedge against inflation.