I'm looking at some data to identify the best areas to buy and hold. I'm less familiar with buying in some of these areas - so I thought I'd reach out. These zipcodes offer really high rental yields even accounting for the vacancy stats. I'm wondering what's the catch? Zip City State Median Home Price ($) Average Rent ($) Gross rental yied 2013 Rental vacancy rate by Zip (%) 13165 Town of Waterloo NY 79,100 1,365 20.7% 6.7 13411 Pittsfield NY 76,400 1,424 22.4% 7.4 14125 Town of Oakfield NY 87,500 1,400 19.2% 4 14437 Dansville NY 81,300 1,416 20.9% 3.7 14445 East Rochester NY 95,800 1,289 16.1% 1.4 14510 Mount Morris NY 72,600 1,399 23.1% 4.1 14517 Town of Nunda NY 78,100 1,441 22.1% 7.5 14605 Rochester NY 40,900 828 24.3% 3.6 14608 Rochester NY 51,100 866 20.3% 6.3 14611 Rochester NY 47,400 855 21.6% 4 14621 Rochester NY 44,700 848 22.8% 5.4 14715 Town of Bolivar NY 47,400 1,401 35.5% 4.6 14727 Town of Cuba NY 69,800 1,456 25.0% 4.7 14735 Granger NY 57,800 1,402 29.1% 5.9 14739 Town of Friendship NY 46,300 1,395 36.2% 6.5 14806 Town of Andover NY 49,000 1,402 34.3% 5.1 14813 Amity NY 55,100 1,433 31.2% 4.2 14891 Watkins Glen NY 106,800 1,449 16.3% 1 14895 Wellsville NY 50,300 1,392 33.2% 3.6 15045 Glassport PA 53,100 776 17.5% 2.6 15110 Duquesne PA 44,500 780 21.0% 6.4 15132 McKeesport PA 46,000 780 20.3% 2.2 15148 Wilmerding PA 46,500 806 20.8% 0.5 15210 Pittsburgh PA 54,400 876 19.3% 3.4 21521 Barton MD 66,400 1,217 22.0% 5.1 21562 Westernport MD 59,600 1,279 25.8% 4.9 44055 Lorain OH 52,500 712 16.3% 1.3 44102 Cleveland OH 48,000 821 20.5% 6.2 44104 Cleveland OH 43,200 835 23.2% 8.3 61401 Galesburg IL 64,200 1,058 19.8% 4.1 73108 Oklahoma City OK 43,900 653 17.8% 3.8 73111 Oklahoma City OK 49,200 718 17.5% 0.7

Kristine Marie Poe Yes a good management company can "help" but it doesn't matter how much vetting they do you are still going to have a higher vacancy and higher eviction rates then you will in a middle to high end client.

@Lee Liu http://www.zillow.com/research/data/ you should be able to download enough housing data, in .xls format,to keep you busy for weeks. Cross reference this with general demographic data from a site like USA.net or city-data to make an intelligent analysis. @Dustin Salmon Your Housing price vs. Housing Appreciation theory seems to make sense. However I believe it's incorrect Without even normalizing for systematic risks the current value of house prices generally resemble future expectations of its worth on average given the whole housing market in total over time, much like stocks. So cheap houses have their expected appreciation or depreciation "priced in" much the same way as a more expensive house would. If you had any objective evidence you could link showing the correlation you mention I would be interested in seeing it.

This question made me smile. The PM company doesn't really help "deal with issues" of rent not being paid. They request rent, and if the tenant doesn't pay, then they file for eviction....on your dime. Then they deal with repair issues and making the unit rent-ready, again on your dime. Since they are usually paid from rents, it's in their best interest to get and keep the units rented. But they aren't absorbing any of the costs. Don't sign up with any PM until you've found one with real live satisfied property owners.

@Rahul Bhandari Property taxes in NY are very high, so you really need to compare net yield, not gross. That said, Rochester NY is one of the best places to invest in the country for cash flow. I would invest in the north parts of the 14621 zip code, near route 104, but I don't like the 14605 or 14608 zips. Here's an awesome site to see where the zip codes are: http://maps.huge.info/zip.htm

I think in general areas with low property values do tend to attract lower income residents and it may over index on lower credit residents as well. I don't have data on credit ratings at a zipcode levels but it does seem right if you sample this http://www.equifax.com/places/#url

@Rahul Bhandari It's not so much a "catch" as it is a trade off. As @James Wise and several others here have said... Higher yields generally mean lower priced properties and monthly rental amounts, lower income tenants, and less desirable areas with less hope of appreciation. Lower yields generally mean just the opposite, higher priced properties and monthly rental amounts, higher income tenants, and more desirable areas with more hope of appreciation. Don't think of it so much as an either / or proposition, but more of a continuum with varying degrees of risk and reward. Ask ten different investors where you should go on that spectrum and you'll likely get ten different answers. Personally, I generally prefer more risk and higher yields to the alternative, as I think cash flow today is a better proposition than the hopes of appreciation tomorrow. Of course, the correct answer for you really depends on your own particular appetite for risk and desired reward. As I understand it, the Cleveland area and many other cities in the mid-west are popular locations for those who invest from a distance to seek better returns. If that's your angle, I strongly recommend you have a strong team in the ground in whatever market you choose to invest to provide you with local expertise and the ability to take care of things for you as needed. I can't vouch for markets other than Cleveland, but here things can change very drastically on a street by street basis and just looking at census tract statistics won't give you enough information to understand that. If you're looking for more Cleveland specific knowledge, I've worked extensively with both James Wise and @Christian Carson and can personally vouch for them. James is a realtor, investor, and property manager that caters specifically to investors and understands the business very well. Realtors with that focus are knowledge are really rather rare. Both Christian and myself are attorneys with an accounting background and experience in real estate investment that could provide you with additional knowledge. I'm certain there are many others on here that could be of help to you as well. Best of luck to you. Tim

There is no "catch," but you do get what you pay for. I invest in St. Louis, MO and purchase in what I would consider to be B & C neighborhoods. I consider a C neighborhood to be one where it is (a) relatively safe and (b) most tenants, although not all, are government subsidized. I have a very high ROI, but those returns do not come as easy as it would in some better neighborhoods. I look for 20-25% cash on cash unlevered returns, which includes vacancy, taxes, insurance, etc. I would not suggest investing in these "higher yielding" areas unless you are personally familiar with the area and the specific house for which you are investing. These are not NNN properties and they should not be treated or sold "turnkey" as such. There is certainly money to be made in this segment, but you have to treat it like a business and not like a financial product with a predictable rate of return and fixed value.

Renter based communities are happening in many places where the numbers didn't make sense before. Cash investors and hedge funds buying in the $200K range are accepting such low ROR, 1st time home buyers can't compete. I know because I've gotten offers from both and I usually end up selling to the investor buyer.

The catch is- tenants. Tenants will make or break your investment, and lower-quality tenants can be fatal for an investment because of how much they cost. With vacancy comes a ton of expenses, more than is probably being accounted for. Of course the lost months' rent (which is probably what is being accounted for), but tenant turnover- repairs, evictions, finding new tenants, etc. and general maintenance and appliances and such.... You can do cheap areas and get those higher returns, but you have to know what you are doing. There are some people on here who that's all they do and are very good at it. But it takes an extra level of education (and patience) to do it right. There's a lot of risk associated with those higher returns.

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Really high rental yields for cheaper housing - what's the catch?

Rahul Bhandari

San Mateo, CA · Member since 2014 · 5 posts · 4 votes

I'm looking at some data to identify the best areas to buy and hold. I'm less familiar with buying in some of these areas - so I thought I'd reach out. These zipcodes offer really high rental yields even accounting for the vacancy stats. I'm wondering what's the catch?

Zip	City	State	Median Home Price ($)	Average Rent ($)	Gross rental yied	2013 Rental vacancy rate by Zip (%)
13165	Town of Waterloo	NY	79,100	1,365	20.7%	6.7
13411	Pittsfield	NY	76,400	1,424	22.4%	7.4
14125	Town of Oakfield	NY	87,500	1,400	19.2%	4
14437	Dansville	NY	81,300	1,416	20.9%	3.7
14445	East Rochester	NY	95,800	1,289	16.1%	1.4
14510	Mount Morris	NY	72,600	1,399	23.1%	4.1
14517	Town of Nunda	NY	78,100	1,441	22.1%	7.5
14605	Rochester	NY	40,900	828	24.3%	3.6
14608	Rochester	NY	51,100	866	20.3%	6.3
14611	Rochester	NY	47,400	855	21.6%	4
14621	Rochester	NY	44,700	848	22.8%	5.4
14715	Town of Bolivar	NY	47,400	1,401	35.5%	4.6
14727	Town of Cuba	NY	69,800	1,456	25.0%	4.7
14735	Granger	NY	57,800	1,402	29.1%	5.9
14739	Town of Friendship	NY	46,300	1,395	36.2%	6.5
14806	Town of Andover	NY	49,000	1,402	34.3%	5.1
14813	Amity	NY	55,100	1,433	31.2%	4.2
14891	Watkins Glen	NY	106,800	1,449	16.3%	1
14895	Wellsville	NY	50,300	1,392	33.2%	3.6
15045	Glassport	PA	53,100	776	17.5%	2.6
15110	Duquesne	PA	44,500	780	21.0%	6.4
15132	McKeesport	PA	46,000	780	20.3%	2.2
15148	Wilmerding	PA	46,500	806	20.8%	0.5
15210	Pittsburgh	PA	54,400	876	19.3%	3.4
21521	Barton	MD	66,400	1,217	22.0%	5.1
21562	Westernport	MD	59,600	1,279	25.8%	4.9
44055	Lorain	OH	52,500	712	16.3%	1.3
44102	Cleveland	OH	48,000	821	20.5%	6.2
44104	Cleveland	OH	43,200	835	23.2%	8.3
61401	Galesburg	IL	64,200	1,058	19.8%	4.1
73108	Oklahoma City	OK	43,900	653	17.8%	3.8
73111	Oklahoma City	OK	49,200	718	17.5%	0.7

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Really high rental yields for cheaper housing - what's the catch?

Really high rental yields for cheaper housing - what's the catch?

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