I'm in the market for rentals(I'm working with a partner) and I've been looking the past few days on MLS for rental properties. Ideally I'd like something that breaks the one percent barrier(meaning monthly rent is . But I have been pondering for the last few days....
Is this even a realistic goal?
I've been using JScott's single family rental expense spreadsheet and have been turning down properties(in the Kennesaw and Norcross) areas left and right.
I'll get decent cashflow for a few properties but I'm wondering my expectations are too high.
When you're starting off it's easy to want to rely on formulas or 'paint by numbers' schemes, but you may have one house that fits the 2% formula and has $ 100 cashflow and another fits 1% and has $ 200 cash flow.
Look at those formulas just as a general guideline, but don't overlook the individual scenario of each property.
@Tanjeem Rhyne I'm not a fan of rules of thumb. You will find Atlanta area properties that do better than 2% that you should not buy. Conversely, you will find properties under 1% rent that are very attractive. You need to actually do the work to assess whether a property is a good investment after weighing the risks against the rewards. It sounds like when you do, the analysis is telling you to pass. Don't change your standards just because you can't find something that meets them. If Cobb and Gwinnett real estate doesn't work for you right now, stay in cash or invest in another asset class or location.
When you're starting off it's easy to want to rely on formulas or 'paint by numbers' schemes, but you may have one house that fits the 2% formula and has $ 100 cashflow and another fits 1% and has $ 200 cash flow.
Look at those formulas just as a general guideline, but don't overlook the individual scenario of each property.
i don't think 2% in very realistic at all. You can't find those deals in my area and I would guess any other area people are wok to affordable rentals and real estate in general. Making money at all after maintenance and mortgage tax is the first requirement. After that it's how bad to you want to be in this game and have something in your name. It's a lot if work. Sometimes you just need one to get you started. I say 300 bucks after profit a month is a good rule.
A lot of it depends on your risk threshold. How high or low is it?
Most people want that rental property in the best neighborhood, where they'll attract the best tenant and have the lowest risk. But those you don't find at 2%, at least not in the MLS, because other investors will have already put them under contract.
Now you'll have to see where you're willing to give : Higher price? Lower rent? Quality of neighborhood?
I just renovated and filled with tenants a duplex , that I had bought for 15K and put about 45K into renovation. I get $ 995 each side. But I have a higher risk threshold than many other people and this would definitely not be something for a beginner.
The point is that there are deals out there, but you might have to shift your criteria around.
I invest in quality neighborhoods with good schools in the Cobb, Cherokee, North Paulding, and South Bartow areas. I look for the 1% rule, but more than that, I want my cash flow to exceed $500 per month. We currently own 3 rentals in East and West Cobb.
You've gotten some good input from the comments here. Ultimately it is a matter of personal comfort and the nature of risk/types of areas & properties that suit you. Higher ROI is generally found in areas that are a bit more risky.
You should probably try getting on some wholesaler's lists as well vs. just relying on MLS.
I think 1% is still realistic for the markets you mention. However, these won't be turnkey. You'll have to upgrade the property to get top dollar. You'll also have to make a lot of aggressive offers to find someone willing to accept your offer. These deals aren't effortlessly available.
Look for deals that fall out of contract or have sat on the market for 60+ days. Talk directly with the agent. Track how many you pursue, offer, and get to a negotiation on . You'll get better and better results in just a couple of months.
I've been turning down deal after deal in Atlanta - even when the 1%+ rule applies...if something doesn't feel right, I lean towards moving on. If the numbers don't work, I definitely move on. I know that I don't have the experience or risk tolerance needed to handle a deal without plenty of cushion.
There's always another deal out there - it's just a needle in a haystack around here lately.