Is anyone getting 1% or more of monthly rent to house price ratio?

[Nicolás Eduardo Larach León]

Hi everyone, 

I'm just starting in the real estate world. I'm reading Brandon Turner's "The book on rental property investing" and I'm puzzled with the examples he gives because he uses rent prices that are around 1% or more of the price house and therefore, he obtains positive cashflow from month one. In my area, that seems very difficult because that ratio is around 0.5% so you basically end up paying the mortgage, taxes and no positive cashflow whatsoever. 

What's your experience? What do you think?

Thanks!

[Dan H.]

You reference is flawed: 

“The price-to-rent ratio compares the median home price and the median annual rent in a given area. (You’ll remember that the median is the midpoint, where half the numbers are lower and half are higher.)”

Do you believe there is any large market anywhere that the median rental is as large as the median home price?   It is not.

Do 1% traditional LTR rent ratio properties exist?   Yes but they are easiest to find in the worst areas of he historically poor appreciation areas.   Is this what you want to own?

Note rent versus purchase price leaves out many variables that are relevant.   Financing plays a role.   Rent growth and appreciation play a role.

I believe for a positive cash flow you need one or more of the following:

- below market value purchase.   Many investors are purchasing far below retail.  These are not typically available on the mls.

- significant value add without associated refinance.

- lower leverage/LTV. Virtually all properties cash flow at 0% LTV.

- alternative financing.  Assumable, owner financed, sub to, etc.

- alternate rent models such as STR, MTR, rent by room. Each of these have their challenges but if done correctly can increase the potential revenue.

- patience: fixed mortgage combined with rent growth implies that virtually all properties will eventually cash flow if no value is extracted.  Note I am not this patient.

Everyone of those options requires work, has risk, and/or takes a long time.

good luck