GRM? Cap Rate?

30 Replies

Hello everyone. This is my first post on the forum besides the new member area. I have been reading a book about investing in Duplexes, Triplexs and Quads. So far, the author has expressed his use of GRM (Gross rent multiple) to do a quick analysis of a property. This ignores expenses, but the author say's that expenses should be fairly constant, which you could argue they are not. What is your method of analyzing a duplex? I am currently looking at a couple of duplexes for sale around my college town. I have found a duplex that is in foreclosure and is 100% vacant. Here is my analysis of income and cash flow

rents $700 x 2 = $1400 a month

Income $16800
Yearly Expenses
($1500) insurance (estimate)
($900) Landscaping
($1,000) Miscellaneous Maintenance
($2,000) Management fee (Don't really have a choice since I will be in saint louis

EBIT = $11,400

($1,700) Taxes (last year was $1500 so I gave myself room)

I get a NOI of 9700 without depreciation and debt service.

Here is my issue, I don't know what to pay for the property.

1.The kitchen's need to be remodeled on both sides, I have a friend that does construction so we would take care of most of the labor. Basically needs new tile, cabinet doors, appliances (including washer and dryer)
2. Need's new garage doors (I think the motors work just needs doors)
3. I won't know the integrity of the room until inspection.

I am going to make an all cash purchase at first so I don't have to worry about financing and paying a mortgage when its vacant... I estimate (and clearly estimate) that I could get away with spending $15,000 on rehabbing and making it look nice without any major finds.... SORRY for the long post

Updated about 9 years ago

Sry, I put room instead of Roof

Some more of my analysis,

if i get into the property around 135,000 (including purchase price an rehab) with my eventual debt service I have estimated $2,700 annual cash flow. 25% down ($33750) thats around a 8% return on equity

Hi, your GRM is part of the equation, in the valuation of property, it must be compared to the CAP rate. Don't forget that the cap rate is the alternative rate for another investment and should be assed for each deal. Appraisers must generalize this aspect of the income approach. To value a property you need to look at the market analysis and construction approach (building it today less physical depreciation/depletion). If you are reading a guru book, skip any chapter on valuation of deals! Gurus usually illustrate only the income appraoch, usually incorrectly, because of two reasons in my opinion, one, it justifies their strategy and two, they can't really value a property, Valuation is beyond the scope of there "Secret Strategy". I would think very few Gurus are appraisers. I'd suggest you tie up with a local appraiser, offer to work form them, even at no pay, As a student of finance and RE, you can open the door with that from an educational aspect.

Without knowing what your cap rate is, valuation is not really possible. Generally, lenders will look at a deal with 20% for taxes, maintenance and insurance, which is a good guesstimate. You're right, maintenance is not a constant variable, but over time a property that is in good condition at the start should be about 8 to 10%. Take care to consider the difference between capital improvements and maintenance. In your area, a college town, maintenance may be a little higher, especially if three students rent a unit. Student housing runs alittle more than a family and you need to have strict rules in place. I always required students to have parents co-sign and sited their lack of credit as being the reason, but really, it was to cover damages. Underwrite the parent! To do this, you need control or final approval with your management company. In your situation, I'd guess that the property needs to be purchased at about 70% of it's income approach, then factor in the other two methods, with the greatest weight (but not entirely) being given to the income appoach. Bill .

There are several sticky threads in the Rental Property forum about expenses. A rule of thumb is that operating expenses, captial items, and vacancy will average about 50% of the gross scheduled rents over long periods of time for multiple properties. While many have argued with that, any time somone's presented actual data, this rule of thumb has been very close.

Certainly for one specific property in one specific year, expenses can be MUCH different. In the best case, you'll have a trouble free tenant for the entire year and your grand total of expenses would be just the taxes and insurance. In a worst case (be sure the read the "possible drug dealing tenant" thread where the owner incurred $6000 in legal fees fighting a bad tenant), your expenses can be much higher than the rent.

So, applying that rule of thumb, the P&I payment must be 50% of the gross scheduled rent in order to be break even. One quick calculation is to assume 100% financing and back into a max price based on the rent. Yes, I'm well aware 100% financing is unrealistic. But your down payment isn't free. By using 100% financing for the calculation, you're making the property stand on its own. The extra cash flow you get with your actual down payment is the return on your cash rather than the return generated by the property.

I assume you actually want to make money with these rentals. A common goal is $100/month in true cash flow.

So, using you $700 in rent, I get:
Rent: $700
Expense: $350
Cash flow: $100
Max payment: $250
Max loan (and price): $41,698

The loan assumes 30 year, 6% financing.

Now you say you're paying cash, so, lets see how that comes out at this price.

Actual cash flow: $350/month
Actual cash flow: $4,200/year
Cash on cash return: 10%

Personally, I consider that crummy for real estate.

But, what if you put 25% down and finance the rest:

Cash invested $10,424
Actual payment: $187.50 ($31,273, 6%, 30 years)
Actual cash flow: $1,950/year
Cash on cash return: 18.7%

Better.

So, if you were to buy four of these using 25% down, your actual cash flow would be $7,800 a year vs. $4,200 a year for just one bought with cash. That's the power of leverage, and honestly, its the only way rental real estate makes sense.

As far as the fix up expenses, simply deduct those from what you will pay. With your $15K fixup estimate, my max price would be about $27K.

You say you're in St. Louis and imply these rentals are elsewhere. Why? I can see if you live in Orange county you'd need to invest further away, but I'm confident you can find great deal within easy driving distance if you're in St. Louis.
$7

Originally posted by Jonathan Sher:
Some more of my analysis,

if i get into the property around 135,000 (including purchase price an rehab) with my eventual debt service I have estimated $2,700 annual cash flow. 25% down ($33750) thats around a 8% return on equity



Sorry, saw you posted this while I was typing.

Here's my take with $135K price, which should be clear is too much.

Rent: $1400
Expenses: $700
NOI: $700
P&I: $607 ($101K, 6%, 30 years)
Cash flow: $93
Cash invested: $33,750
Cash on cash return: 3.3%

Buy bank CDs. You can make as much money and have none of the hassles and risk. If you're determined to invest at a distance, find a better deal than this. This one is poor.

Bill, Thanks for the reply. I have tried to look at comparable properties in the area but it is difficult. There is an identical property down the street that is listed around $155,000. It has been sitting for a while so its obviously not the right price. There's a couple more identical size/type duplex's on the other side of the street that are listened in the low 160's and those have been sitting for over 6 months now.A quick analysis of the $155K one with a cap rate. Lets say the NOI is around $11,000, thats a cap rate of 7 at the 155K price, which seems fairly rich. I'm just having issues comparing properties in the area.... Im not dealing with any financing so im not being forced by a bank to get an appraisal of the property. Do you think its a good idea to have it appraised during inspections if I get a contract on the property?

Originally posted by Jon Holdman:
There are several sticky threads in the Rental Property forum about expenses. A rule of thumb is that operating expenses, captial items, and vacancy will average about 50% of the gross scheduled rents over long periods of time for multiple properties. While many have argued with that, any time somone's presented actual data, this rule of thumb has been very close.

Certainly for one specific property in one specific year, expenses can be MUCH different. In the best case, you'll have a trouble free tenant for the entire year and your grand total of expenses would be just the taxes and insurance. In a worst case (be sure the read the "possible drug dealing tenant" thread where the owner incurred $6000 in legal fees fighting a bad tenant), your expenses can be much higher than the rent.

So, applying that rule of thumb, the P&I payment must be 50% of the gross scheduled rent in order to be break even. One quick calculation is to assume 100% financing and back into a max price based on the rent. Yes, I'm well aware 100% financing is unrealistic. But your down payment isn't free. By using 100% financing for the calculation, you're making the property stand on its own. The extra cash flow you get with your actual down payment is the return on your cash rather than the return generated by the property.

I assume you actually want to make money with these rentals. A common goal is $100/month in true cash flow.

So, using you $700 in rent, I get:
Rent: $700
Expense: $350
Cash flow: $100
Max payment: $250
Max loan (and price): $41,698

The loan assumes 30 year, 6% financing.

Now you say you're paying cash, so, lets see how that comes out at this price.

Actual cash flow: $350/month
Actual cash flow: $4,200/year
Cash on cash return: 10%

Personally, I consider that crummy for real estate.

But, what if you put 25% down and finance the rest:

Cash invested $10,424
Actual payment: $187.50 ($31,273, 6%, 30 years)
Actual cash flow: $1,950/year
Cash on cash return: 18.7%

Better.

So, if you were to buy four of these using 25% down, your actual cash flow would be $7,800 a year vs. $4,200 a year for just one bought with cash. That's the power of leverage, and honestly, its the only way rental real estate makes sense.

As far as the fix up expenses, simply deduct those from what you will pay. With your $15K fixup estimate, my max price would be about $27K.

You say you're in St. Louis and imply these rentals are elsewhere. Why? I can see if you live in Orange county you'd need to invest further away, but I'm confident you can find great deal within easy driving distance if you're in St. Louis.
$7


I've lived in Columbia Missouri for almost 4 years now. I'm very familiar with the town, including the good and bad area's, area's where vacancy is very low etc. There are a ton of duplex's style properties in Columbia and not many in Saint Louis (atleast in the parts of saint louis I like) I just like the market in Columbia more.

Originally posted by Jon Holdman:
Originally posted by Jonathan Sher:
Some more of my analysis,

if i get into the property around 135,000 (including purchase price an rehab) with my eventual debt service I have estimated $2,700 annual cash flow. 25% down ($33750) thats around a 8% return on equity



Sorry, saw you posted this while I was typing.

Here's my take with $135K price, which should be clear is too much.

Rent: $1400
Expenses: $700
NOI: $700
P&I: $607 ($101K, 6%, 30 years)
Cash flow: $93
Cash invested: $33,750
Cash on cash return: 3.3%

Buy bank CDs. You can make as much money and have none of the hassles and risk. If you're determined to invest at a distance, find a better deal than this. This one is poor.


Including property taxes and all other expenses I get about a monthly expense of $592 which is less than %50. With my analysis, my cash flow is around 2,500 a year... Do you see something wrong about my analysis when I stated all my expense and NOI? Are you automatically making expenses 50% of month rent kind of as "Worse case" Scenario? I understand year to year your cash flow will differ. I think I have realistically priced expenses for an average year, and I'm calculating almost $200 a month in Cash flow

No, I'm automatically making "expenses" 50% of rent as an EXPECTED case. Your numbers are a best case analysis.

Here's reality. I just had one of my tenants bug out. This same property had the previous tenant bug out back in April. So, I had no rent for April, May, or December, and probably won't get any in January. I do have $1200 in retained security deposits for those four months, but that's much less than the $3800 I should have had in rent.

When this latest tenant moved out, they left the place messy. Not a disaster, but messy. They had repainted a bunch of the trim, then sloppily overpainted it white. So, a cleaning crew ($180), painter ($300), carpet cleaner ($145), and misc stuff I dealt with myself ($100). In this case, I had only a $400 security deposit because in this neighborhood its very difficult to find anyone who can pay the whole security deposit and a months rent. In this case, the tenants agreed to a higher rent in exchange for a smaller security deposit.

I've decided to try using a leasing agent to re-rent the place, rather than make 20 trips back and forth like the last time I filled a vacancy. That's another $475 once its filled.

Now, they actually left the place pretty clean. I've seen places left filled with trash, trashed carpets, trashed paint, and holes in the drywall. If that were to happen, the make ready costs could have easily been $3000 instead of the $725 they actually were.

Worst case is something like that drug deal in the thread I mentioned. A not so bad and entirely expected worse case would have been a lengthy eviction on top of a mess.

In your list you've included nothing for vacancy, and, unless you're very lucky, you will have vacancy. As some point you will have major expenses. Your $1000 a year may cover minor items, but realize that since you're far away, every little thing is $100 or more because you have to pay someone to go do it. For example, another tenant called and said the "water won't come out" in the shower. What?? Turned out it was a broken drain handle. $3 for the part an 90 minutes of my time, mostly driving, to fix it. For you, that's a service call to a plumber and $100. Eventually, you'll have to replace furnaces, roofs, sewer lines, and other high dollar items. If you own one rental for five years, maybe you avoid that. If you own 30 rentals, you can essentially count on several of those major items each and every year.

Even with the things you mention you're at $592. You're only $108 off the 50% mark, $1296 a year. That's one months vacancy in each unit of your duplex.

Hi, Johanathan, your financial figures are correct. As I said above about the cap rate, and assessing value, your opportunity costs are only know to you and what I meant was what the value of the property to you might be. Jon has a simplified approach that is consistent given the variables as he has pointed out. There is a difference in holding 50, 200 or 2,000 units and 6 or 12. The degree of analysis should be appropriate for the portfolio. With you being a student of finance/accounting you may tend to over analize a property simply because you can. I take a technical approach as well and then an economic benefit analysis. Instead of blindly going where no investor has gone before (if that's possible) I may go with market rates for an investment, if it fits at that price. Your model should reflect economic conditions, housing supply, etc. in Columbia. What rents can you command with a desirable unit three or five years from now? If your goal is holding the property, say for 12 to 15 years (depreciation) you need a "sinking fund" contribution for capital expenses as Jon pointed out. If your goal is to repair the property and build up the rents and sell it 3 to 5 years from now, forget the roof if it does not leak! Let me state something again for clarity: Most investors that have risen from the dust in the past ten or twenty years from Guru seminars and books take an entirely different approach to investing, it's more like seeking out ways to dig into the sellers' equity as deeply as you can to make it a good deal. While these stratigies do make money, in my mind, it does not qualify as real estate investing, more like real estate stealing, but it is legal. Many of these stratigies depend on very motivated sellers, and that's a good thing too, but what happens if the economy gets to a point where it becomes a sellers market, as it will, then what do they do? You need to be able to put a deal together that is a win-win, which means at some point you'll need to know how to invest without discounting a sales price if you're going to continue in the business, say for 30 or 40 years. The properties you mentioned are obviously over priced in this marekt for the area, the proof is that they are still sitting there! Low balling an offer to meet any numbers game based on rules of thumb probably won't get the property you want. Investors rely on making multiple offers in hopes of snagging a deal. A good real estate investor will identify a property that has a greater potential than it's current use or function, can acquire it at a fair price and make necessary changes and increase it's economic benefit. WIth your background, even starting out, you have the tools that are not, nor really could they be, illustrated in a guru seminar or book. Too hard, too difficult and over the head of many small investors (sorry) but it is what it is. There is no right or wrong way (at least in your strategy) so long as it works for you. If Columbia is your target market, if you are shooting for seniors and grad students with means, if you are going to provide a quality product at even a slightly higher rent, then other factors can make a higher price work for you, like financing. As Jon so correctly pointed out, financing is the key to real estate and applying the proper amount of leverage in a deal (that is blended with the overall portfolio) can make or break a deal. Well Florida just won and Bobby said "there is nothing like a win" that's true in real estate as well, there is nothing like a "win-win"! If that's the property you really desire for your portfolio, then slim it down in a good, conservative model and see what it works out to be. Then make your offer and give room for one more counter offer to your highest price. Doing so will probably yield an offer that is a "real" offer and the agent will probably advise the seller appropriately, since they would like to be paid! Good Luck, Happy New Year too by the way! Bill

Jonathan S,
Jon H pretty much has this down...

You are being way to generous with your numbers. A duplex for $135k with an NOI without debt service which is arguably $9700, doesn't take into account your debt service and actual down payment. Jon's 50% calculation is pretty much right on... Although, I like to get close as possible to the real numbers. You have expenses, but I stress, what are the water,sewer, trash bills. Who is paying for electric, gas, heat? Lawn Care...Taxes must be considered. It does appear from just glossing over the numbers, you maybe at less than 200/month cash flow. Debt service of at least $6k/yr subtracted from the $9700, leaves $3700. BUT, if you have 1 or 2 months of a vacant unit, you are at high risk to have a negative cash flow quickly. Never mind about reserve money for maintenance, repair, cleanup. Take away 10% for vacancy and you will see that for $135k...your cap rate is way to low. There's lots of other deals around for $135k with a higher NOI.

I'll put it another way. If your cap rate is 10% and your debt service is 6%... simple math says 4% left over annually for you. Not much on $16,000 possible gross without any glitches.

Hi, I don't want to be misconstrued here, I agree with both of you. Hopefully, I'm pointing out that there are other investment considerations and that sometimes we over analize a deal from just a numbers approach. The listing price is pretty much derived from the GRM at 10% @700. or $140,000.00 and realtors commissions and closing costs up to 156K as is, so is the property really for sale? Are they motivated to sell at a fair price? I didn't get my calulator out on this. I don't know anything about the place other than rents and the numbers you guys have tossed out. What's the building like, improvements, location, sq. ft. condition other than noted repairs??? If the original question was "what is it worth"..Is a property only worth what it cash flows at at it's present value, today? Is any consideration given to the length of time the unit produces income while equity is established? What's that worth, anything? Bill

Bill G,
Nice post... very well put... I didn't see your previous post before my 1st post... Great advice....

Thanks for all the info everyone. It looks like I need to be aiming closer to $100,000. $700 a month for both unit is pretty average. I think if I fix up the place I can ask for $725 so there is some room for increased rent. I know you guys are giving me great information and know what your talking about. It just seems in my area that rental properties go for a premium. I think because it is a college town there is constant demand for units that properties will sell for a higher premium.

I take it the property's in Columbia. I looked there a while back and couldn't find anything that seemed like an acceptable deal. If you're looking for potential future speculation, and willing to accept minimal cash flow or even a net loss on the rental, you might make out OK. But if the numbers don't work as a rental, the numbers don't work. Don't rationalize a bad decision saying "there is demand" and "all properties here go for a premium".

I do believe the 50% rule is pretty optimistic for student rentals. I looked at these for a while in Greeley CO. Similar situation in that the student rentals tended to be more expensive. I also found the vacancy tends to be higher than you might expect. Summers are often vacant, or you end up giving a pretty big discount to get someone in. The mess factor is very high. I looked at a few dozen properties, and every one was a mess. Some were downright disgusting. I went to Rolla, and my brother and sister went to Mizzou. I'm pretty sure what I saw in Greeley was about the same. I like Columbia as a town, and have family there. I just could never convince myself it was a good place for investments.

I would say, though, that $100K, all in, for $1400 a month in rent is probably a decent deal.

Originally posted by Jon Holdman:
I take it the property's in Columbia. I looked there a while back and couldn't find anything that seemed like an acceptable deal. If you're looking for potential future speculation, and willing to accept minimal cash flow or even a net loss on the rental, you might make out OK. But if the numbers don't work as a rental, the numbers don't work. Don't rationalize a bad decision saying "there is demand" and "all properties here go for a premium".

I do believe the 50% rule is pretty optimistic for student rentals. I looked at these for a while in Greeley CO. Similar situation in that the student rentals tended to be more expensive. I also found the vacancy tends to be higher than you might expect. Summers are often vacant, or you end up giving a pretty big discount to get someone in. The mess factor is very high. I looked at a few dozen properties, and every one was a mess. Some were downright disgusting. I went to Rolla, and my brother and sister went to Mizzou. I'm pretty sure what I saw in Greeley was about the same. I like Columbia as a town, and have family there. I just could never convince myself it was a good place for investments.

I would say, though, that $100K, all in, for $1400 a month in rent is probably a decent deal.


Thanks for the help Jon, Im glad your somewhat familiar with the area. I have been talking to a property management company that manages the majority of the duplexes in this area. They have a total of 110 units in the immediate area and they said they are running about 97% occupancy. I agree it can be risky to rent to students. Things seem to get messed up. Also, I think there's always the risk of not getting rent between June-August because a lot of people leave after the school year ends.

Once again, Jon H sums it up appropriately. However, $100k for gross of $1400 month, with a generous 6% debt service only leaves less than $800/month. With taxes, management fee..this now leaves $550/month.. Once again, who is paying the water, sewer, trash, electric, heat, gas. These would have to be separately metered and highly unlikely the duplex is separately metered for all of the utilities... If you have a unit vacant, then you will have negative cash flow instantly... Plus, you mentioned putting in additional money for rehab...

So estimated numbers will be probably $3k/yr or less in NOI. As Jon elluded to from the beginning of the post...3% after debt service is not good.... Since this is a little advice thread... You would have to purchase this at 1/2 price which isn't possible.

I will say this also... if you are purchasing property and will have a management company in place, then you may consider another area with a better rate of return for the same amount of money.

Originally posted by Eric Byrd:
Once again, Jon H sums it up appropriately. However, $100k for gross of $1400 month, with a generous 6% debt service only leaves less than $800/month. With taxes, management fee..this now leaves $550/month.. Once again, who is paying the water, sewer, trash, electric, heat, gas. These would have to be separately metered and highly unlikely the duplex is separately metered for all of the utilities... If you have a unit vacant, then you will have negative cash flow instantly... Plus, you mentioned putting in additional money for rehab...

So estimated numbers will be probably $3k/yr or less in NOI. As Jon elluded to from the beginning of the post...3% after debt service is not good.... Since this is a little advice thread... You would have to purchase this at 1/2 price which isn't possible.

I will say this also... if you are purchasing property and will have a management company in place, then you may consider another area with a better rate of return for the same amount of money.


Each side of these duplex's have their own meters and the tenants pay all utilities. Also, I'm hoping this is just the beginning of my investing in multi-family properties. Im hoping in the next 5-10 years I will have a decent portfolio of properties. I also want to add that this is considered one of the nicer parts of columbia. Other income properties that have better financial evaluations and are closer to the $100K range are in no so great areas' of Columbia. There are a decent amount of duplexes for sale on the northeast side of town and they are fairly new and fairly nice inside. They are located about a quarter to .5 miles away from a public park that is considered "dangerous to be there at night". I don't want to deal with that kind of neighborhood and tenants.

http://www.weichertft.com/Details.asp?ID=317999

Here is a Identical property about 4 duplexes down. It's been on the market for a while now. Obviously way over priced. Just to give you an idea what the duplex looks like. They pretty much all look the same.

Hi, again, lol, just a note I promise!
I don't know what the fuss is about with loss of rents in the summer, well I do, but it should not be an issue since you should be on an annual lease. If other landlords are letting contracts on a month to month, you have a problem! I required my "college units" to be leased annually and I had no problem with vacancy since they word got out that they were really cool split level units, winding stairs and fireplace. Interior was made a bullet proof as possible, commercial burber carpet, door stops and an understanding of what was acceptable conduct! Just a note, Bill

Originally posted by Bill Gulley:
Hi, again, lol, just a note I promise!
I don't know what the fuss is about with loss of rents in the summer, well I do, but it should not be an issue since you should be on an annual lease. If other landlords are letting contracts on a month to month, you have a problem! I required my "college units" to be leased annually and I had no problem with vacancy since they word got out that they were really cool split level units, winding stairs and fireplace. Interior was made a bullet proof as possible, commercial burber carpet, door stops and an understanding of what was acceptable conduct! Just a note, Bill


Yes, its pretty standard for the area to have Annual Leases. Just a thought, my father brought it up that if you don't have co-signers and you have college students that probably have no assets, good luck suing for loss of rent if they decide to up and leave. I think its just apart of the business. Sometimes it can happen, but im not concerned.

In very broad and general terms I would say that cash flow and appreciation go in opposing graphs. The better the cash flow, the slower the appreciation goes and vise versa. When it come to single family, cash flow, under certain circumstances may be partially sacrificed for a long term appreciation perspective, In case of retirement plan for instance. You may buy a rental house today on a very tight cash flow, break even or slightly negative in order to cash on the appreciation when you retire.
SFRs are great because of the broader market appeal. (You don't need an investor to sell it to)
The problem with Duplexes and up (Triplex, fourplex, etc) is that they are income properties by design, and as such, they must perform. Very few consumers buy duplexes to live in one unit and rent the other. Not impossible but quite rare. Therefore, in thinking of future sale, that must come to consideration. If a duplex owner bases his /her asking price on the "common real estate market in the area" without taking into consideration the income viability of the property, his /her only salvation is the next sucker who comes along and as we all know, those never die, they just being replaced by new ones... :wink:

Originally posted by Eddie Ziv:
In very broad and general terms I would say that cash flow and appreciation go in opposing graphs. The better the cash flow, the slower the appreciation goes and vise versa. When it come to single family, cash flow, under certain circumstances may be partially sacrificed for a long term appreciation perspective, In case of retirement plan for instance. You may buy a rental house today on a very tight cash flow, break even or slightly negative in order to cash on the appreciation when you retire.
SFRs are great because of the broader market appeal. (You don't need an investor to sell it to)
The problem with Duplexes and up (Triplex, fourplex, etc) is that they are income properties by design, and as such, they must perform. Very few consumers buy duplexes to live in one unit and rent the other. Not impossible but quite rare. Therefore, in thinking of future sale, that must come to consideration. If a duplex owner bases his /her asking price on the "common real estate market in the area" without taking into consideration the income viability of the property, his /her only salvation is the next sucker who comes along and as we all know, those never die, they just being replaced by new ones... :wink:


Eddie, I agree with you 100%. I have looked at over 100 potential properties to invest into. It always seems like the area's were the cash flow is very good, the neighborhood is not. If I want to look at any properties that are even listed at $100,000 I have to look in fairly bad areas of Columbia. Those area's don't look promising at all for longterm appreciation. I am more interested in making smaller cash flows and banking on building equity and appreciation. Like I mentioned before, the average monthly rent per unit is around $695. 3 years ago, the average was $735. I know the past is the past but I just like this area and think it will appreciate again.

Yep, as I said, never rent to students without the parent co-signing and underwrite the parent, look to the parent to make the deal right. Use lack of credit as your requirement.

I think you are wise to buy quality properties and not get caught up in the slumlord cycle. I could write a book on slumming and the long term effects not only to the property owner but also to the community. Municipal governments in Missouri are learning to deal effectively with slumlords and life will get harder for them in time.

Leverage your deals, acquire quality units, have good management in place and wait to retire, early I might add! Bill

In the next couple of years I suspect, we will experience lower monthly rent among middle class renters. The current employment market force many people to either go back to mommy and daddy or live with friends and other relatives. However, in two, three years when inflation hits and the economy recovers, the qualified-buyers market will shrink even more, that means more demand for rental with higher rent. Those potential renters may not be able to qualify for a loan, but they'll have money in the pocket to rent... At least for a while.

BTW, if you're looking to strike a balance between appreciation and cash flow (1%) and you are comfortable enough to step out of your comfort zone, many places in Texas such as Houston, Austin's satellite towns (Round Rock, Pflugerville, Taylor, Etc), Converse (San Antonio) and others are all great places and easy to rent.Prices are $75,000-$125,000 and rent is a little north and south of $1,000.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here