Best Cash Flowing Metros in the USA

16 Replies

Hello,

I am not a foreigner, but I think my question is relevant to this thread. I am looking to invest in properties with Rent to Price Ratios >2%, but this is very hard to come by in Houston unless you purchase in very bad neighborhoods.

What areas inside of the USA are people finding metros that have Rent to Price Ratios of >2%? 

I'm definitely interested in partnering on deals with locals in that metro.

Best,

Alex Timberlake

Marcus & Millichap's 2017 Multifamily Investment Forecast provides a list of high yield markets that may interest you.  Cleveland, Cincinati, Columbus, Kansas City, Indianapolis and Jacksonville are on the list.  While these markets may not meet the 2% rule in all cases, they are worth exploring.

The materials below are free after you create an account. M&M produces quality research and offers much more than the report below.  I recommend subscribing to their research publications.

http://www.marcusmillichap.com/research/researchre...

Originally posted by @John Jacobus :

Marcus & Millichap's 2017 Multifamily Investment Forecast provides a list of high yield markets that may interest you.  Cleveland, Cincinati, Columbus, Kansas City, Indianapolis and Jacksonville are on the list.  While these markets may not meet the 2% rule in all cases, they are worth exploring.

The materials below are free after you create an account. M&M produces quality research and offers much more than the report below.  I recommend subscribing to their research publications.

http://www.marcusmillichap.com/research/researchre...

I can tell you the Cleveland market is starting to BOOM, but the homes are still very affordable as of now. They are promising to climb in the coming months. Same goes for other Midwestern cities. Now is probably a great time to jump on in! Good luck!

You'll be hard-pressed to find 2% in Jax in a neighborhood that is not bad. May be possible but not easy. I have experience in Indy as well and would say it seems a little more plausible, but my experience in Indy is rather short so it may turn out those neighborhoods are pretty bad too. 

If you might be looking for wholesale properties in Indianapolis or Cincinnati, even Charlotte, NC.  PM me.  I have some solid people I can refer you to.  They work with out of state investors all the time and are great at understanding what you need and directing you to the appropriate areas and neighborhoods.  

@Alexander Timberlake any of the midwest cities will get you there. We are in Kansas City, MO and love it.  Deals are harder to come by but they still exist.  

Any market where you can still get 2% RPR is very likely going to be in very risky properties, with low rents and an unreliable tenant base.  They are best left to the local investors who can closely manage these properties as a full time investment.  Still there are markets where you can can very decent cash flow on rentals, but if they are turnkey look to achieve closer to 1% RPR.  If you are thinking of buying homes that need some work, then you can do better, but will assume more risk.  What is your target price and rent ranges?

@Larry Fried I have been looking at $75k-$150k here in Houston. There are several decent neighborhoods that are close to schools that have a lot of properties in this price range than cash flow about 1%. The problem is Houston property taxes are about 3-4% in these areas and this severely eats into your cash flow margins. I've calculated that 1.2% RPR is the minimum required for the property to give me the yield I am looking for. 

Ideally, I want to be able to use property managers to do everything for me. This goes for in-state or out of state investing. I understand that properties in bad neighborhoods might have higher turn over and higher vacancy. But a 2% property with 50% vacancy is equivalent to a 1% property with 100% vacancy. I have a hard time believing that the vacancy will drop that much. From searching through Memphis, TN, it looks like there are a lot of properties in the 3-4% range... but they are definitely in rough neighborhoods and all will require some level of repair. 

Yes @Alexander Timberlake you definitely have to account for the higher tax rate.  While it may seem that vacancy won't drop below 50%, it can really depend on the property and the management.  Further vacancy is not the only factor, there is damage to the property that can be inflicted by tenants, leaving you with frequent and large turnover costs.  Then there are the headaches and worries about what does and might go wrong.  I think the price range you are talking about in Houston, if you go to another market, something in the midwest or southeast should get you something in good working class neighborhoods or better, and turnkey producing 1% or a little better.

@Alexander Timberlake   I just visited both market Memphis and Houston and from what i can see on the ground when you are buying Turn Key In Memphis they are priced between 9%-13% depend on locations, these in locations out of wore zones.  If you are able to buy non TK, Rehab and rent you can achieve 15%-17%, but you have to buy very well.

basically taking out the TK provider Margin.

Now, in Houston I had a look and can see that in Spring and Cypress can easily provide 10%. but considering the Taxes and insurance we will need at list 15% to cash flow reasonably.  this is also achievable if you buy well.

I seen house purchased for 180k renovated for 60k and appraised at 290k while rents are $3000pm. now that's what I call reasonable deal.

@Hadar Orkibi I think to get that 15 to 17% return, it is not only taking out the TK profit, but the TK philosophy of addressing all deferred maintenance up front and replacing items that work simply because they are old such as 12 yr old AC units and 10 yr old roofs. Replacing older items that work and addressing all deferred maintenance easily adds 10 to 12k to a Turnkey sell price.

TK is simply a real estate transaction. Good TK properties with everything new and updated are sold at top of market just like a homeowner would whose house was in perfect condition who updated his properties before the sell.  But like the homeowner who knows his house has deferred maintenance, he will sell at a discount to get the home sold. The TK philosophy is that the higher priced home will provide more consistent cash flow and the discounted home will not cash flow consistent because of extended vacancy, lower then expected rents and maintenance cost. The TK alternative philosophy is (and maybe you can share your perspective of the TK alternative) get in as cheap as possible and worry about the deficiencies of the property down the road and use the cash flow the first 1 to 5 years to address the lack of cash flow for years 5 to 10.

I agree 100% that the TK option is good one for the reason you mentioned @Alex Craig , especially when the work done is good quality, without cutting corners or addressing deferred maintenance. 

I believe that TK is a good option for out of area investor who cant handle the Rehab etc themselves (or have the support team in place). Personally, I would be happy to buy TK but would want some equity in the deal. 

The "TK alternative" could be defined in a few ways, my understanding of this is that one uses a RE agency to buy the property and they help with the renovation etc, then they probably want to manage it as well.  Like with most RE transactions you make your money when you buy, now this is the usual "Cliche" but its true, unless the property has a different upside to add value. 

To your question, my TK alternative would be to buy a property at a discount (Through an Agent, Wholesaler, TK Provider or Off market private seller) renovate it for 20k-25k to your standard mentioned above and then rent it. ie. buy 60k spend 20k value say at 95k and rent for $1000pm.  Of course this needs to work for all sides involved and the deal provider would be compensated accordingly. 

This is not easy for out of area but I Believe its do-able with the right contacts in place, and big chunk of good will. Cheers  

I have been reading on BP for a while and learned a lot.  I have interest in all the threads about cash flowing cities but the same 5 or 10 cities get named every time it seems. However, what are some good cities that balance reasonable cash flow, maybe moderate appreciation potential, and have relatively stable tenants?  For example, what about Vegas or Phoenix?  It seems that a lot of the cash flow meccas tend to be lower income stuff which creates instability. Or maybe I should just be looking at nicer stuff in the cash flow meccas!?  Curious what you experts have to say.

@Bob Smith I work in with rental properties in Indianapolis. I don't typically recommend my clients to purchase homes in the 2% ratio. While they do exist, they will usually have more headaches than value. When you cross over to the B-Class areas or better, you will see cash flow, appreciation, and stable tenants. For example, one of my clients is currently set to close on a 10 year old home on the outskirts of Indianapolis. He is purchasing it for $89.9k. It needs new carpets and paint... this shouldn't cost more than $3k. The FMV of the home after repairs should be around $115k. He should have it performing for around $95k in all. It will rent for $1,150/mo and should be able to draw in good middle-class tenants. Indianapolis does have very stable rents, so the rent rate will not likely raise every year, but the area should see stable appreciation in the equity.

With modest figures, he should net 9-10% ROI annually for an all cash deal. He is actually financing with about $20k down so his COC ROI should actually be closer to 15%.

These numbers are very similar to @Hadar Orkibi example above.

I believe that the issues with Vegas and Phoenix is that the cost of purchase is too high in ratio to the rent that they demand. It may be worth entertaining short-term or vacation rentals in those areas though.

My acquisitions guys get quite a few in the 1.7%-2.0%+ range in Texas and Oklahoma.   Here's a few examples of ones they have right now:

  1. 2.4% - Texas 4-Units - Rents total $2,800mo / For Sale $115K
  2. 1.91% - Texas Package of 3 SFRs - Rents total $1300mo / For Sale $68K
  3. 1.80% - Texas SFR - Rents for $900mo / For Sale $49K
  4. 1.79% - Oklahoma SFR - Rents for $700mo / For Sale $39K
  5. 1.77% - Oklahoma SFR - Rents for $600mo / For Sale $34K

Check out Augusta, GA.

You can reach the 2% rule depending on the deal. Incredibly strong job growth and extremely low prices. I live in a 4/2 1700 sq ft in an up and coming area and we bought our house for $123k.

I just put together a package of properties for a client. He will be buying just under 1mm worth of properties and he is getting 22 (I believe) units. That's like a 43k per unit average.

Memphis is a great CashFlow market! 

The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Mgmt., and a Real Estate Investment Brokerage in case you ever decide to sell.

By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind.

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