At what point does rent get too high for the neighborhood?

Member since 2022 · 39 posts · 6 votes

I'm looking at a large 5/1.5 in a working-class neighborhood. I'm still very new at all of this, but recently purchased a similarly-sized house in the same neighborhood that came with tenants that just resigned a lease with me for $1,750. With similar rent, the one I'm currently considering will cash flow. Given the neighborhood (not a place with a bunch of young people looking to split a place, not a college town), my target audience will be families. Maybe I'm overthinking this, but at what point does the cost of rent limit my renter pool with people opting to buy instead? Would I be better off focusing on smaller places with broader marketability?

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Brian J.

Akron, OH · Member since 2022 · 19 posts · 10 votes

Quote from @Scott Seydor:

...that... and my concern that there would be fewer people that would opt to rent a house for $1800 instead of getting a mortgage for $1100.

If they could get a mortgage...

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
If you have a similar place in the area that is rented, I wouldn't worry about it. What are typical rents for your area? Where I am $1750 for a house is about normal.
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
@Theresa Harris I guess I'm more worried that we lucked out in buying the last place with built-in [great] tenants. We recently listed our 1/1 (same town) and got tons of interest, but that's an entirely different type of renter. Because we didn't have to list the 4/1.5, I have no clue what the renter pool is like for similarly-sized houses.
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
...that... and my concern that there would be fewer people that would opt to rent a house for $1800 instead of getting a mortgage for $1100.
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Brian J.
Akron, OH · Member since 2022 · 19 posts · 10 votes
4y
Quote from @Scott Seydor:

...that... and my concern that there would be fewer people that would opt to rent a house for $1800 instead of getting a mortgage for $1100.

If they could get a mortgage...
4 Reply
John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
A 5 bedroom would get a get rental income via section 8. Something to check into.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
Have you looked to see if there are similar properties listed for rent or call a local property management company and talk to them?
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
Quote from @Scott Seydor:

...that... and my concern that there would be fewer people that would opt to rent a house for $1800 instead of getting a mortgage for $1100.

Problem is most people who rent are renting because they can't get a mortgage or don't want to buy a house.
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
Quote from @Theresa Harris:

Have you looked to see if there are similar properties listed for rent or call a local property management company and talk to them?
Not many for rent… definitely no 5 beds. Turns out there was a county voucher tenant in there and I’m told the county was paying $2170! Just did a drive by. Seeing it in the am and expect to be putting an offer in shortly thereafter.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Scott Seydor
Tenants are tenants for a reason - many can't get their lifes together enough to get a mortgage, so will rent for life.
We've not had good experiences with 5 bedroom homes for the simple fact that not a lot of families need that many bedrooms. It's a basic supply & demand equation, how many families need 5 bedroom homes? Not many.
4 beds seems to be the cap before we start seeing a negative impact.
Regarding S8 being great for a 5 bed home, not in our experience. What type of family has that many kids yet isn't financially stable? Add in that it'll also usually be a single parent household. We can show you pics of trashed homes from similar S8 families.
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
Quote from @Drew Sygit:

@Scott Seydor
…We've not had good experiences with 5 bedroom homes for the simple fact that not a lot of families need that many bedrooms. It's a basic supply & demand equation, how many families need 5 bedroom homes? Not many.
4 beds seems to be the cap before we start seeing a negative impact…

Yep, that’s what I fear and where my head is at. Technically it’s a 4b, as the 5th doesn’t have a closet, but it’s listed as a 5. But still.
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
Quote from @Drew Sygit:

@Scott Seydor
@Scott Seydor
Regarding S8 being great for a 5 bed home, not in our experience. What type of family has that many kids yet isn't financially stable? Add in that it'll also usually be a single parent household. We can show you pics of trashed homes from similar S8 families.
I’m not really keen on S8, but at $300/mo over market I might consider rolling the dice to see if I could get a good one in there.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
Large families in need of 4-5 bedrooms can't afford to purchase a home right now. Even if they could, they can't find one. Rent should be safe and stay safe for quite some time.
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Paul Camuto
Real Estate Coach · Robbinsville, NJ · Member since 2017 · 185 posts · 99 votes
4y
Quote from @Scott Seydor:

I'm looking at a large 5/1.5 in a working-class neighborhood. I'm still very new at all of this, but recently purchased a similarly-sized house in the same neighborhood that came with tenants that just resigned a lease with me for $1,750. With similar rent, the one I'm currently considering will cash flow. Given the neighborhood (not a place with a bunch of young people looking to split a place, not a college town), my target audience will be families. Maybe I'm overthinking this, but at what point does the cost of rent limit my renter pool with people opting to buy instead? Would I be better off focusing on smaller places with broader marketability?

It gets too high when it crosses over to being able to afford to purchase it.
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John Bartlett
Member since 2021 · 62 posts · 46 votes
4y
@Scott Seydor one is the things with s8 is you screen the tenant the same exact way, credit check, background check, calling their references, calling past land lords etc. There are a ton of people waiting for a house that size on a voucher, don't just take the first one.
Drive to their current address to get the application signed, so you can check to see how they take care of the current place(you can't tell them that's why, and make it unannounced or with little warning).
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Dillon Dale
Real Estate Agent · Owatonna, MN · Member since 2017 · 221 posts · 152 votes
4y
@Scott Seydor what is the median household income for the area? Monthly income should be 2.5-3x the rent amount
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
Quote from @Dillon Dale:

@Scott Seydor what is the median household income for the area? Monthly income should be 2.5-3x the rent amount
$25,000 single/$50,000 married
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Scott Seydor
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Member since 2022 · 39 posts · 6 votes
4y
Low-ish offer went in on Saturday and we're thinking it's a long-shot.
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