Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
For those holding single-family rentals in small rural markets (towns under 10K), what's the minimum cap rate you'll buy at? I'm using 7% on all-in cost (price plus repairs plus closing) after 8% vacancy, 8% maintenance, 8% capex, management, taxes and insurance. Is that too low for the extra risk out there (thin resale, fewer tenants, contractor availability), or about right? Curious whether anyone uses a different number for voucher tenants versus market-rate.
i don't think "8% capex" makes sense here, especially on rents that are so low - the properties need what they need. maybe one needs a roof and one doesn't. and one needs a furnace, and one doesn't.
and if you factor in all the costs i mentioned... i can tell you: your first year return is going to be zero or negative. and your second year return: zero or negative. you get the picture.
is this a real question? OK, I'll bite. 0. 0 is my cap rate, or cash on cash rate, or whatever you want to call it.
because there's no cash flow on SFRs right now in the first few years (unless you pretend there is no down payment, no rent ready costs, no leasing fees, no closing costs on the purchase, etc.)
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
3d
Fair point for metro deals with a down payment and a mortgage. I'm running it on all-in cost, cash basis: purchase plus rent-ready repairs, closing and holding, then 8% each for vacancy, maintenance, capex and management, plus actual taxes and insurance. In small Alabama towns, houses are trading in the $50K to $70K range against $550 to $750 rents, so the math is different than Pittsburgh. Would you still call 7% unrealistic on those numbers, or just too thin for the risk?
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
2d
You are running 8% capex on a $700 rents thats only $56? Capex turnover repairs does not go down just because rents are low, its very unlikely it costs less then $250 a month averaged out on a little house so 5x what you are estimating at a minimum. I would not touch even an apartment that rented that low let alone a house, will be a money pit.
Las Cruces, NM · Member since 2026 · 4 posts · 4 votes
3d
This is a helpful discussion. I agree that smaller markets generally warrant a higher target cap rate to account for thinner buyer pools and potentially longer vacancies. The all-in cost approach makes sense for a fair comparison. Do you also factor in a reserve for the higher turnover costs that can come with rural properties?
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
3d
Thanks Tim. Right now I carry 8% vacancy, 8% maintenance and 8% capex, but no separate turnover line. Feedback today pushed me to add one. Tenants here tend to move about every 3 years, so I'm planning a turnover reserve sized to one make-ready (paint, cleaning, small repairs) plus a month or two of lost rent every 3 years, spread across the yearly numbers. I'm also checking local vacancy data, since I've heard the statewide figure is closer to 13% than 8%. One thing working in my favor on the voucher side: in a county with about 100 vouchers, an average of around 45 holders are out searching at any given time, so demand for units that pass inspection runs well ahead of supply. How do you size your turnover reserve?
Real Estate Agent · Memphis · Member since 2026 · 570 posts · 336 votes
3d
For a town under 10,000, 7% would make me cautious. With fewer tenants, limited contractors, and a smaller resale market, one extended vacancy or major repair can eat into that return pretty quickly. The smaller and less active the market, the more cushion the deal needs.
I wouldn't automatically set a different cap rate for voucher tenants. I'd look at the actual rent, local demand, inspection requirements, and how quickly the property could be filled again if that tenant leaves. The voucher alone wouldn't determine the number.
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
2d
Appreciate that, Jim. Agreed on cushion in a small town. I'm already carrying 8% vacancy, maintenance and capex, plus a separate turnover reserve, and I'm pricing repairs at a rural safety multiple since sub pricing is thin out here. On voucher demand, the county I'm looking at has roughly 100 vouchers with about 45 holders actively searching on average, so refill time looks better than the town size suggests. Inspection readiness is built into my scope before I'd call anything a deal. Would you push the target above 7% for a town this size, and if so, where?
Investor · Washington, US · Member since 2021 · 99 posts · 29 votes
2d
In thin markets I stop thinking in cap rate and underwrite to vacancy and exit instead - a 9 cap on a house that sits 90 days between tenants beats a 7 cap only on paper. Pull actual days-on-market and the rent range from the last 12 months of listings in that town, then rerun with 2 months of vacancy and a sale price 10% under today's comps and see if it still clears. On the voucher point, agreed: the right adjustment is to the quality of that specific house and the local housing authority's inspection turnaround, not a blanket cap rate bump.
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
2d
Good push. I ran it on two adjacent houses I'm looking at in a town under 10K: a 3/1 at 1,280 sf asking $64.9K and a 2/1 at 1,284 sf asking $57.9K. That's $122.8K combined, about $48/sf. Attempting to build an offer set of assumptions.
Assumptions: 8% vacancy, 10% management, 8% maintenance, 8% capex, estimated taxes at the rental rate, and actual landlord insurance quotes of $4,810/yr for the pair. That insurance alone eats about a third of gross rent.
As occupied: both tenants pay $550/mo, month to month, no leases or deposits. That's $1,100/mo, about a 2.4% cap at ask (1.5% with your 2 months of vacancy). Max all-in at 7% is about $42K.
One voucher (3/1 at $766 after utility allowance, 2/1 stays at $550): $1,316/mo, about 3.8% at ask (2.8% with 2 months of vacancy). Max all-in about $66K before repairs.
Both on vouchers ($766 + $494 = $1,260/mo): about 3.4% (2.5% stressed). The 2BR voucher nets less than the current $550 tenant, so the voucher only helps on the 3/1.
Vacancy should run shorter than average here: the housing authority turns inspections in about a week, and roughly 45 voucher holders in the county are searching at any time with few landlords or houses that pass inspection. Even so, it only works well under ask. Is $4,810/yr for two small houses high for a rural landlord policy?
i don't think "8% capex" makes sense here, especially on rents that are so low - the properties need what they need. maybe one needs a roof and one doesn't. and one needs a furnace, and one doesn't.
and if you factor in all the costs i mentioned... i can tell you: your first year return is going to be zero or negative. and your second year return: zero or negative. you get the picture.
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
2d
Fair point, and on houses built in 1929 and 1947 a flat % is just a placeholder. I'm walking both next week and will price capex item by item: roof age, HVAC/furnace, water heater, electrical service and wiring, foundation, plumbing. Each gets a remaining-life and replacement cost, and anything due in the first 2 years comes off the offer price instead of being spread as a reserve.
Agreed on the result too. At ask, with the insurance quotes I have, it's thin to negative before a single big item hits. The only version that works is buying well under ask with those items priced in, so year one doesn't eat the reserve. If the walk says roof plus furnace on both, it's a pass.
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
2d
Fair hit, and you're right that capex doesn't scale down with rent. At $250/mo per house, the best case I ran (one voucher, about $1,316/mo combined) goes from a 3.8% cap at ask to roughly break-even.
That's exactly why I'm not underwriting off a percentage. I'm walking both next week and pricing roof, HVAC, water heater, electrical, plumbing and foundation item by item. Anything due in the first few years comes off the offer price, not out of a reserve. I've run turns and pre-purchase inspections at volume, so I'll do most of that pricing myself.
If the walk confirms big-ticket items on both, it's a pass at anything close to ask. The only version that works is a price that already pays for the capex up front, not one that hopes rents cover it later.
Technology · McKinney, TX · Member since 2026 · 18 posts · 1 vote
1d
Watch for double counting. Your 8% vacancy is roughly one month a year, or about three months per three-year tenancy, so the lost-rent part is likely already covered. I'd make the turnover line just the make-ready: paint, cleaning, flooring touch-ups, minor repairs, plus leasing costs like listing fees and rekeys. Then divide by 36. A $3,000 turn works out to about $85/month. Pad it for rural markets, where scarce contractors can make turns take longer and cost more, and adjust after tracking a couple of actual turns. On capex, a flat 8% can be off in either direction. Dating the roof, HVAC and water heater and spreading replacement costs over their remaining life is tighter. I built CapexClock to do that (so I'm biased).
Real Estate Agent · Boston, MA · Member since 2025 · 13 posts · 5 votes
3h
I underwrite multis in Worcester and Warren, and honestly the headline cap rate is the least interesting number on the page. What I actually look at: rent durability (can this tenant base absorb a $100 bump without turning over?), and exit (who buys this if I need out in 5 years?). Small towns can show 9-10% caps that evaporate the minute you have 2 months vacant with no depth of demand behind you. I'd rather take a 7% in a market with 50 buyers waiting than a 10% where I'm the only bidder. Thin markets punish you on the way out, not the way in. DMs open if you want to talk through a specific deal.
Real Estate Consultant · Alabama | SFR Operations Nationwide · Member since 2026 · 16 posts · 6 votes
12m
Exit is the part I price from the walk, before I ever look at the cap. In a thin market the buyer pool is mostly owner-occupants and small local investors, and they all buy the same way: they walk it, find the one thing that looks deferred, and chop the price or walk away. So I write the scope to what that buyer will inspect, not what makes the rent roll look good. Roof, water, panel, HVAC first. Paint last.
On rent durability, I'd add one more question for small towns: who pays the rent when the tenant loses a job? A big share of the rent coming from a housing authority changes the vacancy math more than a 9% versus 7% cap does. Depth of demand and condition at exit decide whether the number holds.