Rental Estimates for Up & Coming Neighborhoods

[Shawn Costley]

I live in Huntsville, AL and I'm looking at a few rental candidates for my own buy and hold portfolio (primarily SFR, 3/2 or better). This will be my first purchase. What I'm beginning to notice in several old neighborhoods are patches of blocks where rehabs are taking place--which is typically a good sign. A few of these properties are being sold and are rent ready. The ones I'm looking at are less than $100K.

I'm working the numbers in the BP Rental Calculator and am trying to ascertain what to charge for rent. I know (via rentometer and rental comps from my agent) what the rent is for the older homes. Because my potential purchase will be a newer rehabbed home, what would be a safe percentage markup to use in my calculations? If I utilize the current rental rates of the older homes and the purchase price of the rehab in the rental calculator, I'm unable to achieve either the Cash on Cash ROI (minimum 12%) or desired Cashflow ($200.00).

I'm concerned about setting a rental price that may be too high for the area--especially when your one of the first few properties going through the rehab process.  Any tips, tricks, hacks or recommendations?

Also, should I expect my Cash on Cash ROI and Cashflow numbers to work on properties below $100K or is the property price immaterial?

Thannks!

[Dave DeMarinis]

Your targets are readily achieved in the sub $100K purchase price for sure, including in Huntsville. For rent comps, you should start by calling some property managers and getting their estimates for the address/street/neighborhood you are considering. You should also go to a couple open houses and see for yourself what properties are asking what rents and see how you will compare to them. It sounds like you are looking at listed properties so ask the agent for a rent comp report on the address. At that point, you’ll have three data points. If they converge, you are probably on the right track. If not, take two aspirin and call in the morning ... :-)

The actual answer is highly neighborhood and rent dependent. In Huntsville, I’ve seen a rehab get $900 where older, outdated homes that are still solid and functional get $800 and there are poor condition homes on the street renting for $650.