Why Some Rental Deals Feel Tight Right Now

Question

A lot of rental deals still look okay but feel tight.

Usually because:

Debt costs are higher

Rent hasn’t caught up everywhere

Margins are thinner

The deals working:

Bought below market

Strong rent-to-price ratio

Conservative underwriting

Are you passing on more deals lately?

James Jones · Answer

Yeah, definitely passing on more than I used to. The numbers just don't pencil out the way they did a couple years back. I've been sticking to off-market deals where I can negotiate harder on price, and even then I'm stress-testing rents at like 90% of what comps show just to be safe.

The rent-to-price piece is huge right now. If I can't hit a solid ratio going in, I'm out. Refi assumptions are killing people who underwrote at lower rates and are now stuck holding.

Luka Milicevic · Answer

In my market of Nashville I've basically stopped buying rentals. Can't make sense of them...for the most part. It's a long term "park your money" play at the moment. Cash flow is not what it once was. Rent prices have not kept track with house prices which creates a situation where rent to value is so low that it's nearly impossible to cash flow.