Minimum Rent for SFR in Kansas City

11 Replies | Kansas City, Missouri

Considering the average rental period of a tenant, the cost of periodic repairs, and the cost of turnover, what minimum rent do investors shoot for with single family houses in the Kansas City area (Missouri and Kansas sides)?  I've heard anywhere from $700 to $1000.  I'm curious to hear the rationale behind the answers.

Trent, it COMPLETELY depends upon a number of factors. In my experience, location is one of the biggest drivers. Finishes in the home mean a lot to - has it been updated? Also, we manage over 400 doors here in the KC Metro and having a garage and a basement are crucial for us placing tenants fast and at the top of the market. At a minimum, I would shoot for $1 per sq ft (finished space) for rent. Hope this helps - if I can help in any way, let me know. 

I think the minimum of $1/sf is good benchmark. I usually get in the $1-$1.25 on my apartments depending on the area. Larger homes actually rent for less per sf and smaller ones rent for more. A studio apartment will rent for $1.40 a sf where a 3/2 that’s 1500 sf might rent for $0.80 sf. Remember that the market really sets the rate so make sure you check rentometer and local comps. You can’t charge $1200/Mo when market is $600/Mo so know your market. 

I also don’t buy any unit where the market rent is less than 750/Mo, regardless of size. For me, the numbers just don’t ever add up on those low rents because I like to renovate my properties. But for some folks it works. So it’s all very dependent upon personal strategy! 

@Lee Ripma

The second part of your answer is what my question was pointing toward. So I guess a better way of asking the questions is:  "Regardless of size, for one door in Kansas City, what is the lowest market rent you'll allow for a rental?"

For example: Bob has the opinion that if he buys a KC property (turnkey or a BRRRR) that will rent for $XXX/month, it's a good investment. He has the opinion that any property that will rent for less than $XXX/month is not worth it because of turnover costs, class of tenant, financing, (insert rationale here), etc.

^^^This is where I wanted the replies and debate to go.  Sorry for the confusion.

I understand what you are driving at now. I think you get that everyone has their own preferences for asset classes. I don’t buy any unit that has after reno market rent below 750. I also don’t buy SFH because they don’t generate enough cash to justify the work. The way I see it all commercial investing is BRRRR. You buy at a certain price and raise your NOI to increase the value. As a very general rule I look at what the ARV based on income will be. Then I try to buy for 30-50% of that number and put another 30-50% in. I want to be all in (acquisition plus rehab) at 60%-80% of my ARV. I might be able to pay market for the current income but i know that I’m going to raise the income and the value significantly. This works on small MF as well as small apartments (and large ones too, I’m just not there yet). In my view the special power of RE is that you create value beyond what you have into the deal. That’s how you get equity, make money, have a cushion if something goes wrong, etc.

It depends a lot on the size of the property too, so price per sq. ft. might be a better metric. But other than on really small houses, we want to be at at least $700/month usually.

Originally posted by @Trent Kruessel :

@Lee Ripma

The second part of your answer is what my question was pointing toward. So I guess a better way of asking the questions is:  "Regardless of size, for one door in Kansas City, what is the lowest market rent you'll allow for a rental?"

For example: Bob has the opinion that if he buys a KC property (turnkey or a BRRRR) that will rent for $XXX/month, it's a good investment. He has the opinion that any property that will rent for less than $XXX/month is not worth it because of turnover costs, class of tenant, financing, (insert rationale here), etc.

^^^This is where I wanted the replies and debate to go.  Sorry for the confusion.

 Bob needs to define his budget... if bob only has say 50k that answer is much different than if bob has 2-300k. 

@Trent Kruessel This depends on a number of factors. Location, square footage and number of beds/baths will be the biggest factors. We typically focus on 3Br 1.5Ba properties in B Class areas that rent for $950-$1,100/mth. You raise an important point about repairs and turn over costs that often aren't considered. It costs the same to replace a furnace or AC or do a tenant turn over on a property renting for $700 as one renting for $1000. This is a big reason why cheap properties with low rents are difficult to cash flow. 

In my own SFR investments I go $1,000 and above, but generally advise out of town investors to stick with $850/900 and above on SFR, to avoid the less desirable areas.