Where are the 1% Houses?
I am in the Raleigh/Durham NC market. <2018 there were a few 3/2 houses here and there in sub $200K range. Putting them in the .8-1% range. I was able to pick up a few. Now, the home prices are rising so fast, that rents are not keeping up. I am searching everyday for a deal that can cash flow. But the home prices are so high and rents are not reaching anything close to 1%. Most back of the napkin calculations put the houses at 0.5%-.07%. Putting almost every deal into negative cashflow.
To make matters worse, inventory is very low. There are almost no homes under $300K.
Has anyone had success in this type of environment? Is there strategy that works in this kind of market? Do I tolerate negative cash flow and take advantage of appreciation? Will rents catch up?
The market has changed and I don't know how to evolve my strategy.
Hi @Michael Magee, the lack of inventory is not only with the lack of houses to buy. There is also generally a lack of rental inventory.
You could also try to bank on the appreciation. The home equity growth will generally outpace the negative cash flow.
If you lose $300 per month in cash flow, that is $3,600 per year in the red.
On a $300k house, at a 3% appreciation rate, you would be at $9,000 in the green.
You could also try looking at more cash flowing markets such as in the Midwest.
Alternatively, you can create the cash flow by doing a BRRRR.
Hope this helps! Let me know if I can be of any assistance.
@Andrew Garcia. Thanks for the reply.
There was a ton of apartment complexes built in this area over the last few years, and I attribute of the rental lag to that. I had really expected the rates to track the cost. Higher interest rates haven't helped either. Financing the typical (in my area) $300K 3/2 went from $1100mo to $1600mo, but rents did not track up that much. I have been successful with my current tenants in getting a 7% rent hike. If I can do that year over year for a while, I may be able to catch up (as long as rental market comes along).
BRRRR's are even harder. There is nearly no rehab houses in this area. I keep my eye out for them as well. I am little nervous about getting out of my backyard. But I might have to do that find the right rental market.
Does anyone count principal pay down as part of ROI. It don't really see it mentioned much.
I am wholesaling my first property in Durham, close to RTP. Owner bought as an investment in 2019, but has had some personal issues and wants to sell. Small 2b/1ba house with vacant, cleared lot next door. House needs some TLC but has had new HVAC, Water Heater put in, new insulation and drywall in some areas, and some new electrical. Selling separate or together. Total is 1.38 acres, under 300k. LMK if interested in more info.
@Michael Magee have you ever looked at Subject-To? You could control the asset under the existing finance, take advantage of appreciation, rent for over the mortgage payment, and at an appropriate time, refinance it and take title under your LLC, Trust or other entity of your choosing. Maybe that could work for you.
Quote from @Maurice Smith:
@Michael Magee have you ever looked at Subject-To? You could control the asset under the existing finance, take advantage of appreciation, rent for over the mortgage payment, and at an appropriate time, refinance it and take title under your LLC, Trust or other entity of your choosing. Maybe that could work for you.
@Michael Magee I read up this article on subject to agreements and it was very comprehensive and informative. Thought maybe it could help you and others consider what Maurice suggested.
Quote from @Nicole Elianna:
I am wholesaling my first property in Durham, close to RTP. Owner bought as an investment in 2019, but has had some personal issues and wants to sell. Small 2b/1ba house with vacant, cleared lot next door. House needs some TLC but has had new HVAC, Water Heater put in, new insulation and drywall in some areas, and some new electrical. Selling separate or together. Total is 1.38 acres, under 300k. LMK if interested in more info.
@Nicole Elianna I would be interested. Do you have an address I can look up?
@Michael Magee I changed my rental strategy to do MTR and have had great success. I'm sure it works in your market as well.
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