Thumb rule to determine rental deal feasibility?

Question

Hello

Is there a thumb rule to determine if a rental apartment or home deal is good? What should be considered a good return % wise, let's say in Houston, TX or Minneapolis, MN or Chicago, IL.

Thanks

Sid

Noah Chappell · Answer

@Siddharth Parekh yep that would be correct about the COC. I'm assuming you're not an agent so your access to the MLS will come from a search you set up with an agent, or via a site like zillow, Redfin, trulia, etc. I personally recommend setting up notifications on those sites over getting a search set up through an agent unless you have a personal friend do it since the agent will be perpetually on your case for all time pressuring you to buy if you do it through them, will want you to sign an exclusivity contract, etc.

BRRRR is a much revered high level strategy that involves buying, rehabbing, renting, refinancing then repeating the process. I won't go into it further here, it's been explained better than I could on this site countless times.

Adam Tafel · Answer

1% rule properties are out there in the Twin Cities, but pretty rare these days. I wrote an offer on a listed 1% duplex in St. Paul tonight, and sold a 1% 4plex last month. You've gotta be quick, but they exist.

Ned Carey · Answer

@Siddharth Parekh welcome to BP.  The 1% rule mentioned is the gross monthly rent should be at least 1% of the all in after repairs price of purchase.  You do not subtract out any expenses from the rent when calculating this.

However as you asked this is a "Rule of thumb" and it is a crude rule of thumb. This number can vary from below 1% up to 2%. It depends on your market and your financial position and goals.

I suggest you use 1% as a quick screening tool to eliminate a lot of deals then more closely analyze the deals that pass the screening. After you have done that a number of times you will get an idea of what the % number should be for you in your market.

There are other tools here like the calculators under the tools tab above and a number of other rules of thumb you may find in the forums.

David Barnett · Answer

At this point in the cycle, you're not going to find a 1% deal in Minneapolis.

Siddharth Parekh · Answer

@Noah Chappell - I am not an agent, I will need to ask around in my friends circle to see if there is one. Thanks for the info.

Siddharth Parekh · Answer

@David Barnett - awesome! Thank you for the direction.

David Barnett · Answer

@Siddharth Parekh MLS is the Multiple Listing Service (MLS).  It's where on-market deals are.  You can use a bunch of websites to find the information.  There's Zillow, Realtor.com, Ziprealty, Redfin, etc.  The MLS service in the Twin Cities is called Northstar MLS, and an agent can hook you up with access.

Siddharth Parekh · Answer

@David Barnett - thanks. I am guessing MLS is a website for property listings? I googled it and found one, but not sure if it's the same thing. Noted about 0.85-0.95% and cash flow. Thank you.

David Barnett · Answer

@Siddharth Parekh In the past few years, I've seen deals (MLS deals) that are trading somewhere in the .85%-.95% range.  I keep on seeing data that the inventory in the Twin Cities market is at historic lows.  The percentage likely has dropped, and I think it's hard to find deals in the actual Twin cities that will cashflow.  However, I think the opportunity for appreciation is there (in the right areas of Minneapolis and Saint Paul).

Siddharth Parekh · Answer

@Noah Chappell - thank you. So for instance, let's say we put 40k down on 200k for the 20% DP, so 8-10% cash on cash would mean $3200 - $4000? Am I interpreting it correct? Noted about $150/ unit/ month. I don't know what are BRRRRs, can you please elaborate. It appears you are based in Minneapolis, would you know of a good resource to view available properties? Thanks again.

Thumb rule to determine rental deal feasibility?

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