531 tenanted rentals across three Texas markets. None work at the asking price.

Steve Waller

OP

Lender · Houston, TX · Member since 2026 · 60 posts · 6 votes

1w

That lands, and it reframes my own finding. If listed inventory at a buyer's price has gone to nearly zero, then running every listing against a purchase test isn't finding deals, it's measuring how far the listed market sits from fundable. The 43% median gap is the spread a negotiation has to cover, not evidence the market is broken.

Where I'd add to it: the negotiable files don't announce themselves in the price, they announce themselves in the seller. Long-held, out-of-state, estate, an expiring lease nobody wants to re-sign. That shows up in the record before it shows up in the ask, which makes it screenable even if the price never is.

The one piece I'd keep from the screen is running coverage at two prices. At asking, zero of eighteen files with rent evidence cleared 1.25. At the fundable maximum, eight did, the best at 3.36. Same house, same tenant, only the price moved. That gives you a number to negotiate to instead of "offer below asking," and it tells you fast when a file is unnegotiable at any price, which is usually a tax rate problem rather than a price one.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

1w

Note I copied my response on your other thread about flipping inventory.

Regarding tenant-occupied listings, 95%+ of agents, even most that claim to be "investor-friendly", have the WRONG approach to doing their CMAs🙃

Typically, a buyer that intends to buy a property to owner-occupy is really buying a "home".

"Home" is purely an emotional concept and is nothing tangible!

So, the buyer really only considers if they can afford the payment.

Buyers do NOT really worry about value or rent appreciation, neighborhood vacancy rates, etc.

An investor on the other hand, should be emotionless and solely analytical and only offer a price that makes their ROI target work - which is typically BELOW the asking price.

So, agents doing a CMA for a tenant-occupied property should only be using comparables of tenant-occupied sales🤩

NOTE: this is mostly a problem for single-unit properties. 2-4 unit properties, due to low numbers being owner-occupied and even those few buyers having to take into account rent for the other unit(s) to qualify for a mortgage, pricing takes care of itself.

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Steve Waller
OP
Lender · Houston, TX · Member since 2026 · 60 posts · 6 votes
1w
Drew, taking the CMA point somewhere else since you posted it on both threads: the CMA is not what sizes the loan. The appraisal is, and the appraiser is pulling from the same owner-occupied sales pool the agent is. So even when the investor is right that an occupied single-unit is worth less than the street, the advance still gets calculated off a number built from buyers who were purchasing a home rather than an income stream. The investor and the appraiser are wrong in opposite directions and the borrower funds the difference in cash.

Your 2-4 unit note matches what I see in Texas. On duplexes and fourplexes the price already carries rent, because the owner-occupant buyer needs the other unit to qualify. There is no gap between how the seller prices it and how I underwrite it. The problem sits exactly where you put it - single units with a lease attached, sold to an income buyer, comped against people buying a house to live in.
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Michael Eskenasy

Investor · Pacific Northwest · Member since 2026 · 511 posts · 290 votes

1w

I think your core conclusion is right, but I’d tighten one piece: coverage is not really a property characteristic or just a price characteristic. It’s an interaction between the property’s income, operating burden, financing terms, and basis.

That distinction matters because it explains why the same house can look terrible to one buyer and perfectly rational to another.

What you’re really uncovering is that the MLS asking price is often solving for a completely different buyer than the one using hard-money or strict DSCR constraints. The seller is monetizing the lease, occupancy, and perceived stability. Your model is underwriting the capital stack. Those are two different valuation systems looking at the same asset.

The tax-rate point is especially important. A lot of investors screen properties with a simplified rent-to-price lens and only discover later that taxes, insurance, HOA, management, turnover, or local operating costs destroyed what looked like a reasonable yield.

I’d make one adjustment on vacancy too: rent history is valuable evidence, but I wouldn’t treat it as permanent. I’d preserve the subject’s actual lease history, then reconcile it against current achievable rent and property condition. The historical lease tells you what did happen; the market tells you whether you can reproduce it.

And your final point is probably where the real opportunity is: if the seller is already pricing the asset efficiently for an income buyer, there may be very little spread left to discover. The interesting inventory is often where the seller’s decision process is being driven by something other than maximizing yield—estate, fatigue, liquidity, portfolio cleanup, geography, timing, or operational failure.

At that point you’re no longer just screening houses.

You’re screening seller circumstances.

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Steve Waller
OP
Lender · Houston, TX · Member since 2026 · 60 posts · 6 votes
1w
Michael, the tightening is fair and I will take it. Coverage is an interaction, and the reason it read as a price characteristic in my run is that I held the other three inputs still. Same rate, same term, same advance on every file, income taken from the record. Price was the only thing I let move, so price is what showed up. That is a property of the test, not of the world.

The input that surprised me by moving as much as price was the tax rate. One city on that board runs 2.6978%. On a mid-priced house that is over ten thousand a year, and it costs more coverage than fifty basis points on the note. It is set by geography, it does not negotiate, and it is invisible in a purchase formula.

On vacancy I will take your reconciliation. The closed lease is the ceiling and the evidence, not the forecast - a rent set two or three years ago tells me the house rents, not what it rents for now.

And yes on screening sellers. Most of it is already pullable: length of hold, out-of-state tax mailing address, estate or trust in the seller name, lease expiration. The circumstance is in the record earlier than it is in the price.
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Mark UpdegraffBusiness Member

Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 685 votes

1w

Interesting dataset. The one thing I’d pressure-test is whether the hard-money test is telling you the properties don’t work, or that hard money is the wrong capital for most of that inventory.

If I’m buying something stabilized and already tenanted, I’m underwriting normalized NOI, actual collections, taxes after acquisition, insurance, deferred maintenance/CapEx and then permanent debt.

Expensive bridge money makes more sense to me when I have a defined value-creation event that justifies paying for it.

If 531 stabilized rentals fail because they’re being forced through bridge financing, I’d rerun the same sample using realistic local-bank/DSCR debt. If they still don’t work, then you’ve got a pretty interesting pricing signal.

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Steve Waller
OP
Lender · Houston, TX · Member since 2026 · 60 posts · 6 votes
1w
Mark, that is the strongest objection to the post and I think you are largely right. A bridge test on a stabilized tenanted house asks it to be cheap for a rehab nobody is doing.

Here is the part I did run on permanent terms. On the eighteen files with usable rent evidence I calculated coverage at the asking price and again at the fundable maximum, holding one leverage assumption and one rate. At asking, none cleared 1.25. At the maximum, eight did, the best at 3.36. So the DSCR version fails at asking too - but I should be honest that failing 1.25 at one fixed leverage is not the same as failing on permanent debt. Drop to 65% and put more cash in and several of them clear, which is your point restated: they work for a buyer bringing thirty to forty percent, not for a buyer bringing leverage.

I will rerun the same sample on local-bank and DSCR terms across a few leverage points instead of one and post what comes back. If they still fail across the range, that is the pricing signal. If they clear at 65 and fail at 80, the finding was never about the properties.
1 Reply
Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 685 votes
6d
@Steve Waller

That’s exactly the distinction I was trying to isolate.

I’d love to see the leverage curve instead of one binary pass/fail — 65%, 70%, 75% and 80% with the operating assumptions held constant.

My guess is some of these aren’t necessarily “bad rentals”; they’re assets requiring more equity than leveraged buyers want to bring.

If the same sample still struggles at 65–70%, then you’ve got a much cleaner pricing signal.

Tag me when you rerun it. I’m curious where the actual break point lands.
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Camden Lowrance

Investor · IN · Member since 2019 · 35 posts · 24 votes

1w

I bought one tenant occupied rental off the MLS and they immediately stopped paying. Had to evict them. Never again, some lessons you learn the hard way.

With all the mega corps pulling back from SFR, these properties are going to get harder to move.

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Steve Waller
OP
Lender · Houston, TX · Member since 2026 · 60 posts · 6 votes
1w
Camden, that is the risk the ask does not price. The lease conveys; the payment record does not. The MLS file gives me rent and expiration and tells me nothing about whether the last twelve payments landed on time, and the seller is charging a premium for occupancy regardless.

The only thing I have found that helps is making the payment ledger and a signed estoppel a condition during the option period, and underwriting the make-ready as if the unit is empty on day one. If it only works with that tenant in place, it is not a deal, it is a bet on a stranger.

Your second point is the one I keep chewing on. If the institutional bid thins out, a yield-priced ask has nobody left to sell to at that yield, and the gap I am measuring closes from the price side rather than the rent side. That would show up first as tenanted listings sitting longer than vacant ones in the same zips. I have not pulled that split. Worth doing.
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Camden Lowrance
Investor · IN · Member since 2019 · 35 posts · 24 votes
6d
Is this AI? You actually write like this?
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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

1w

jsut have to put a little more money down then they ALL work or pay cash.. nothing said real estate HAS to work with with the minimum down a lender will require.

out west this has always been the case nothing ever cash flows with 20% down ever and that goes back to the 80s..

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Matthew Walker

Member since 2026 · 7 posts · 2 votes

1w

The coverage point falls straight out of the math. With the same loan terms, debt service scales with price, so DSCR at asking is DSCR at the max divided by asking over max. That makes your eight passing files readable backwards. For the 2.03 file to fail 1.25 at asking, its ask has to be more than 1.62 times the fundable max, so over 62% above it. For the 3.36 file, more than 2.69 times, about 169% above. Both are well past the corridor's 43% median and your closest file at 15.3%, which fits your read that those sellers are pricing to a yield buyer.

Turned around, it's a quick filter for counteroffers: a file that covers X at your max still clears 1.25 at any price up to X divided by 1.25 times the max. The 2.03 file tolerates about 62% over the max; the ones above 1.6 tolerate about 28%. I don't own doors yet myself, so weight this as arithmetic rather than experience.

Steve Waller

OP

Lender · Houston, TX · Member since 2026 · 60 posts · 6 votes

4d

@Mark Updegraff Here's the leverage curve, re-run on today's data for the Houston metro only: 328 tenant-occupied single-family listings across eight counties, $80K–$400K. I valued the 51 that had at least three comparable closed sales in their own subdivision. Everything was held constant except the advance rate: same values, same make-ready allowance, same closing costs.

The test asks whether (value × advance rate) − make-ready − closing reaches the asking price, with nothing out of pocket.

On a median-condition value, nothing clears at 65%, 70% or 75%, and one clears at 80%. On a renovated resale value, one clears at 70% and 75%, and four at 80%. After reading the listing records, the one that clears at 70% is an occupied estate listed as drive-by only, and one of the 80% files is a short sale. That leaves two lendable files, and both need 80%.

The more useful number is where each file breaks: the advance rate at which the asking price works. The median file needs about 100% of its renovated value and 108% of its median-condition value. So you're right that they aren't bad rentals. But more equity doesn't fix them. At 65–70% it gets worse, because the seller is asking full value with the lease already priced in.

So the pricing signal holds. For these listings the question isn't how much leverage — it's how far below asking the offer has to be. Where do you see the break point land in Rochester on tenanted listings?

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