Graham your article is accurate and well done. I have over 40 rental units outside of Columbus, OH. Due to the latest county reappraisals, my property taxes have increased 28% YOY. Spoke with my insurance agent last week and he is also expecting substantial increases coming my way.
Utility costs also should also be highlighted. I’m seeing 15-20% increases in utilities across the board.
28% is brutal! With the added overhead on the taxes and utilities, how much would you have to pass on to tenants to stay profitable? I'm generally pro renting in this climate, but if the costs are shooting up like this, I wonder how long it is before renters start to feel the impact.
If they aren’t locked into a long term lease, they are feeling the impact immediately.
I’ll give you an example of a 5 plex I own. This particular property saw an increase in PT of $8k YOY. Everyone in that building has been with me for 5-10 years. All of them are on Jan-Dec yearly lease terms. After fighting with the county trying to get the taxes reduced, I finally had to send a letter to all of them preparing them for potential increases outside of my control. I am very lucky because they all received substantial increases, and stayed with me. Even with these rent increases I am projected to be down 5-10% YOY on this 5 plex. It is a lose-lose.
My commercial tenants face this dilemma:
Their customer base saw their personal home taxes go up substantially. If I raised the rent for my commercial tenants, they now have to raise their prices. Now it is an issue in the marketplace. You have a consumer that has less spending power vs a business that has to increase prices.
You say that homes aren't going to provide and ROE you find worth it. But to a investor that is earlier in their journey, wouldn't 1-4% on a 600k house net me more money then 7% of the actual money I have (let's says FHA down-payment of 5% of that 600k)?
I understand going forward homes may not return what they used to, but isn't it a way to increase my personal wealth using the banks money?
For a first-time buyer or someone earlier in their journey, the calculations are a bit different and more involved – again, a lot of this would depend on how housing trends play out over the next few years, how other associated costs shoot up, etc. That's a whole different topic, will have to dive deeper into it sometime. I'll probably keep you updated on the process of selling my houses through the year.
Well written and a great argument to sell based on the adjusted ROE of investment properties. I hadn't thought about that, but will look at it more closely as I evaluate my rental property portfolio.
But, you didn't mention, depreciation, interest deduction, and leverage in your article. What looks like a small return, turns out to be much higher when you factor in the above
Hey Graham, reader of your blog from Hungary here. :)
I was surprised by this story... turns out my country acted quicker than the US in this case. Since last September, we have a so called first-home mortgage locked at 3% instead of the real market mortgages that vary between 6-7%.
The symptoms you predict the US real estate market to have can already be inspected here. Enter 1st Sep, the real estate prices rose by 10-15% for nothing... the flats that have been not renovated for 20 years all of a sudden rose by millions of HUF. This artificial state of the market does not care whether you are indeed a first-home buyer or not because parents can buy homes on behalf of their children... or on behalf of any close relatives!
So your market prediction can already be felt here - albeit we are a small country and we are way behind any big economies. But guess what... after the first two months, the number of sold real estates started dropping sharply as prices are historically high and no home owners want to sell at a lower price than the maximum amount where this 3% mortgage can be applied (of course, experts say that the months of Dec-Jan are always the weakest). Meanwhile, the buyers don't have money on their hands and they also fear that valuators would value the chosen flat or home much less than what they bargained for so they would need more money from the bank.
I'll be curious how this turns out in a much more stable economy than ours. The symptoms over here however are not looking good. The wealthy can find a couple of great deals here and there but those in need get left behind once again.
I still at times consider going into property, short term air BnB let, mainly because of the cheap debt on offer and for diversification away from the stock market, but it's pretty much impossible to compete with the S&P 500 over the past 5 years.
I am now 3 years totally out of rel estate and am really missing the depreciation and other hidden benefits that I am not finding anywhere else except the one time shot in oil, and that arena has a lot of risk.
Yes and no... The 530k gap actually means we have a surplus of sellers relative to willing buyers. Inventory isn't 'low' in the way it was in 2021-22. But demand is collapsing because the price-to-income ratio is broken.
What matters more is the pace at which new inventory is added to the market, which is what the blue graph shows. We can't meet growing demand if this trend continues. Lowering rates temporarily might help clear some of this backlog, but it won't fix the median buyer being priced out.
I’ve been doing all these same calculations since interest rates jumped 2.5% summer 2025. It’s hard to sleep, it’s hard not to worry. I’ve cut personal spending and costs where I can, I’ve offloaded assets. I have one rental for sale.
After 2025 real estate taxes I feel broke, yet, I see all the money, as you say, trapped in these rentals and to get it out I’d have to refi at a loss (per month) or sell some. So selling them all is a repeating thought.
But then the realtors and the government together get too close to half.
Your rationale for selling at this stage is because real estate is about to get more expensive? I'm not sure I follow that logic. Even your ROE argument gets better if the pricing moves up. Honestly, it seems like you feel overexposed to the asset class and its aggravations and want a data point to jump off from and this feels like it for you.
When the Fed started jacking rates, I started selling and was able to get a hefty chunk out of the market while buyers could still afford to buy. Those assets have been frozen in value since that time, while I moved those funds into Private Credit to take advantage of the higher rates on short term money. If rates are coming down now (and they will when Powell gets replaced, but not as dramatically as predicted), I'll move back to another asset class, probably RE again because of the rate induced asset pricing increase.
Graham your article is accurate and well done. I have over 40 rental units outside of Columbus, OH. Due to the latest county reappraisals, my property taxes have increased 28% YOY. Spoke with my insurance agent last week and he is also expecting substantial increases coming my way.
Utility costs also should also be highlighted. I’m seeing 15-20% increases in utilities across the board.
28% is brutal! With the added overhead on the taxes and utilities, how much would you have to pass on to tenants to stay profitable? I'm generally pro renting in this climate, but if the costs are shooting up like this, I wonder how long it is before renters start to feel the impact.
If they aren’t locked into a long term lease, they are feeling the impact immediately.
I’ll give you an example of a 5 plex I own. This particular property saw an increase in PT of $8k YOY. Everyone in that building has been with me for 5-10 years. All of them are on Jan-Dec yearly lease terms. After fighting with the county trying to get the taxes reduced, I finally had to send a letter to all of them preparing them for potential increases outside of my control. I am very lucky because they all received substantial increases, and stayed with me. Even with these rent increases I am projected to be down 5-10% YOY on this 5 plex. It is a lose-lose.
My commercial tenants face this dilemma:
Their customer base saw their personal home taxes go up substantially. If I raised the rent for my commercial tenants, they now have to raise their prices. Now it is an issue in the marketplace. You have a consumer that has less spending power vs a business that has to increase prices.
Your common sense and knowledge are always impressive
Genuine question here:
You say that homes aren't going to provide and ROE you find worth it. But to a investor that is earlier in their journey, wouldn't 1-4% on a 600k house net me more money then 7% of the actual money I have (let's says FHA down-payment of 5% of that 600k)?
I understand going forward homes may not return what they used to, but isn't it a way to increase my personal wealth using the banks money?
For a first-time buyer or someone earlier in their journey, the calculations are a bit different and more involved – again, a lot of this would depend on how housing trends play out over the next few years, how other associated costs shoot up, etc. That's a whole different topic, will have to dive deeper into it sometime. I'll probably keep you updated on the process of selling my houses through the year.
Well written and a great argument to sell based on the adjusted ROE of investment properties. I hadn't thought about that, but will look at it more closely as I evaluate my rental property portfolio.
But, you didn't mention, depreciation, interest deduction, and leverage in your article. What looks like a small return, turns out to be much higher when you factor in the above
Hey Graham, reader of your blog from Hungary here. :)
I was surprised by this story... turns out my country acted quicker than the US in this case. Since last September, we have a so called first-home mortgage locked at 3% instead of the real market mortgages that vary between 6-7%.
The symptoms you predict the US real estate market to have can already be inspected here. Enter 1st Sep, the real estate prices rose by 10-15% for nothing... the flats that have been not renovated for 20 years all of a sudden rose by millions of HUF. This artificial state of the market does not care whether you are indeed a first-home buyer or not because parents can buy homes on behalf of their children... or on behalf of any close relatives!
So your market prediction can already be felt here - albeit we are a small country and we are way behind any big economies. But guess what... after the first two months, the number of sold real estates started dropping sharply as prices are historically high and no home owners want to sell at a lower price than the maximum amount where this 3% mortgage can be applied (of course, experts say that the months of Dec-Jan are always the weakest). Meanwhile, the buyers don't have money on their hands and they also fear that valuators would value the chosen flat or home much less than what they bargained for so they would need more money from the bank.
I'll be curious how this turns out in a much more stable economy than ours. The symptoms over here however are not looking good. The wealthy can find a couple of great deals here and there but those in need get left behind once again.
I still at times consider going into property, short term air BnB let, mainly because of the cheap debt on offer and for diversification away from the stock market, but it's pretty much impossible to compete with the S&P 500 over the past 5 years.
Can you make the app available to download outside of the US? Would love to test it out in Ireland.
I am now 3 years totally out of rel estate and am really missing the depreciation and other hidden benefits that I am not finding anywhere else except the one time shot in oil, and that arena has a lot of risk.
If there are over 500,000 more sellers than buyers doesn’t that mean there’s excess inventory?
Yes and no... The 530k gap actually means we have a surplus of sellers relative to willing buyers. Inventory isn't 'low' in the way it was in 2021-22. But demand is collapsing because the price-to-income ratio is broken.
What matters more is the pace at which new inventory is added to the market, which is what the blue graph shows. We can't meet growing demand if this trend continues. Lowering rates temporarily might help clear some of this backlog, but it won't fix the median buyer being priced out.
I’ve been doing all these same calculations since interest rates jumped 2.5% summer 2025. It’s hard to sleep, it’s hard not to worry. I’ve cut personal spending and costs where I can, I’ve offloaded assets. I have one rental for sale.
After 2025 real estate taxes I feel broke, yet, I see all the money, as you say, trapped in these rentals and to get it out I’d have to refi at a loss (per month) or sell some. So selling them all is a repeating thought.
But then the realtors and the government together get too close to half.
What are you relocating capital to?
Story for another day :) I'm still working it out.
Your rationale for selling at this stage is because real estate is about to get more expensive? I'm not sure I follow that logic. Even your ROE argument gets better if the pricing moves up. Honestly, it seems like you feel overexposed to the asset class and its aggravations and want a data point to jump off from and this feels like it for you.
When the Fed started jacking rates, I started selling and was able to get a hefty chunk out of the market while buyers could still afford to buy. Those assets have been frozen in value since that time, while I moved those funds into Private Credit to take advantage of the higher rates on short term money. If rates are coming down now (and they will when Powell gets replaced, but not as dramatically as predicted), I'll move back to another asset class, probably RE again because of the rate induced asset pricing increase.
You’re going to cash out and pay all those capital gain taxes?