2017 Rental Returns Review by State
I follow up on last year investment review with the 2017 performance by state. The best performing area considering net income and appreciation for that year is Charlotte NC.
As discussed here, the appreciation of most US market is attributable to home buyers. Americans have access to credit again.
1 Arizona: Improving Fundamentals
- with a vacancy of 6% and average tenancy length of 22 months, my Mesa triplex continues its recovery
- net income is 6.5% and gross income 14%
- there is still a large amount of charges (landscaping, water meters) but market rents increased 15%. Tenants are renting far below market.
The area saw good appreciation, repairs and appliances replacement are the main expense.
2 Florida: Booming Market
- with a vacancy of 2% and an average tenancy length of 20 months, the area is performing well
- net income of 7.5% gross income of 16%
- the largest expense comes from local tax and management
The property manager is expensive but keeps the properties full and the rents flowing in. Market rents increased 30% in a year, and we are able to raise rents significantly. Tax increased and we found a lower cost better cover insurance.
3 Georgia: Tenant Problems
- with a vacancy jumping from 0 to 7% and tenancy length cut down to 14 months, this was a terrible year
- net income was 1% and gross income 10%, this contrasts with previous net income was 9% and gross income 13.5%
- repair expense rose to such amount that cumulative net income on this investment went from 70% of gross income to just 40%.
The turn expense for the selected tenant quality corresponds to an excessive 5 to 10 month of rent. A double vacancy in 2017 changed the profitability of this investment. A higher quality house was purchased near Atlanta which saw spectacular appreciation, but not much rent increase but we have a further vacancy and turn coming on this one 2018.
While those properties appeared profitable 2014-2016, last year forces us to review these numbers.
The long-term rental income is lower than was first experienced, select areas give good appreciation but and it is now difficult to source properties that yield a sensible 10% gross with our vendor.
4 Indiana: Partnership Cashing Out
Indianapolis investment is with Holdfolio. This partnership invested in 10 super low cost (30k) houses. After making a great return, the partnership is now proceeding to sell some of those houses at a profit.
5 Missouri: Going Nowhere in 2017
- vacancy of 28%, average tenancy length is around 12 month
- net return is around 0 for a gross return of around 15%
- repair expense absorb most of the income from those low rent properties
After 2 years of ownership, the track record is not ok. These properties do not perform and are still in need of stabilization. The rationale for investing in KC was to open a business in a more stable market, but the outcome so far has been to drag down our net result.
We purchased 2 houses in better areas of KC that should provide better tenant stability and higher rents (above 1k pcm) which should better cushion repair costs. Rehab on these houses is still lagging.
6 North Carolina: Booming Market
- vacancy of 2% and average tenancy length of 20 months (and growing)
- net income of 8%, gross income of 13%
- no large expense yet
The area is booming and property prices are soaring, rents increase more slowly.
It now gets harder to get 10% gross yield with our vendor.
With low cost and great appreciation, Charlotte's got a lot.
7 Texas: Higher Tax but not Higher Rent
- 4% vacancy 30-month average tenancy duration
- net income of 5.3% gross income of 15%
- main expense comes from property local tax due to soaring property prices
Property prices soared, causing an increase in local tax, but this is not translated into higher market rent.
The reduction in rental yield and increasing borrowing power of occupier buyers can be seen across all markets.
This trend is set against the recent US rates hikes and a US trade war that is disrupting Asian credit markets, leading to ever lower rental yield and higher fixed income bond returns.
See on Amazon: China-U.S. Trade Issues
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