Everyone - I NEED INPUT
I ran some statistical analysis and found the cities in the US with the lowest rent to price ratios hovering around 2.0 to 4.0. I then read an article from a prominent investor that he invest in properties that produce a R/P ratio of 8 to 9.
Are properties that have very low P / R ratios typically poor investments... similar to multifamily units that are producing huge Cash on Cash returns are probably slum units?
EX: Phoenix, Illinois has a RP ratio of 3.72. The houses are small, very cheap, and rent is VERY high. The city is run down, and not in a good location.... what am I missing here?
Thanks for any input
R/P ratio of 8 is nothing that I have ever heard of before. I stay in markets where R/P ratios are 1-2
Ratios are nice to look at and that's about it. They can be a "guide" for you to determine what's going on in a particular area. But what's important is the area you're investing in. Like you said in your post, the ratio is high, but the city is run down. Is it worth it to you, to get a high ratio in a dumpy city? You might want to look at cash on cash return. You'll need to know how to calculate it, but it's not that difficult. I believe BP has a calculator for it. I would stay at 10% or above on the C.C.R. PM me, if you have any questions. Best of luck to you.
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