All Forum Posts by: Nicolás Eduardo Larach León

Welcome to BiggerPockets Nicolás Eduardo Larach León! — that’s a great book to start with, and you’re asking the right questions early on. You’re not wrong: in a lot of higher-cost markets, hitting even 0.5% rent-to-price is the norm, which makes it really tough to cash flow from day one.

That’s why many investors look out-of-state to places like Memphis. Here, it’s still very realistic to find properties that meet or even beat the 1% rule, which is exactly the math Brandon Turner uses in his examples. On top of that, a lot of BRRRR investors here leverage hard money lenders that cover 100% of the purchase and 100% of the rehab, so they’re usually only about $10K out of pocket per deal. That structure makes positive cash flow and portfolio growth much more achievable than in high-cost markets and increases your overall cash-on-cash returns!

The key to protecting yourself when investing out-of-state is leaning on local expertise: hiring an investor-friendly agent who also owns rentals and works closely with property managers and contractors. That way you’ve got real eyes on the ground helping you vet deals, run numbers, and keep rehab projects on track.

If you’d like, I can share examples of how out-of-state investors are structuring deals like this in Memphis to actually hit those rent-to-price ratios you’re reading about? Let me know! Talk soon!

You reference is flawed: 

“The price-to-rent ratio compares the median home price and the median annual rent in a given area. (You’ll remember that the median is the midpoint, where half the numbers are lower and half are higher.)”

Do you believe there is any large market anywhere that the median rental is as large as the median home price?   It is not.

Do 1% traditional LTR rent ratio properties exist?   Yes but they are easiest to find in the worst areas of he historically poor appreciation areas.   Is this what you want to own?

Note rent versus purchase price leaves out many variables that are relevant.   Financing plays a role.   Rent growth and appreciation play a role.

I believe for a positive cash flow you need one or more of the following:

- below market value purchase.   Many investors are purchasing far below retail.  These are not typically available on the mls.

- significant value add without associated refinance.

- lower leverage/LTV. Virtually all properties cash flow at 0% LTV.

- alternative financing.  Assumable, owner financed, sub to, etc.

- alternate rent models such as STR, MTR, rent by room. Each of these have their challenges but if done correctly can increase the potential revenue.

- patience: fixed mortgage combined with rent growth implies that virtually all properties will eventually cash flow if no value is extracted.  Note I am not this patient.

Everyone of those options requires work, has risk, and/or takes a long time.

good luck