Am I just blind? Trying to find my first rental.

[Tony Maro]

I've been researching for about 4 months within an hour of me to find something to buy and hold and have yet to find anything that could even come close to the 1% rule.  In fact, to hit the 1% rule I'd have to buy for at least 20% less than the asking price.

Rents for a 3/1 in my area go for about $900 to $1100.  2/1 for $600 to $850.  The cheapest 3/1 I've seen is listed at $120k and it's not a nice neighborhood at all.  There's no property that is run-down but on a decent street on the market that I can find.

I'm just not seeing anything that would give positive cash flow. Is this unusual? There's no REO in my area, no HUD sales and the only properties I've seen that need work only hit the 1% rule with the list price, but need another 30% for repairs and upgrades. Or it's a house that was built in 1900 and needs torn down rather than renovated due to decades of neglect.

So far I've been checking reatlor.com / zillow daily and with my agent every so often to see if there's anything I'm missing.  I narrowly missed the only property I thought was a reasonable possibility because when i first started looking it was already under contract.  It was a 3/1 that went for $75k in a neighborhood where average is about $120k historically.  I'd estimate needed about $18k in repairs.

I looked at a 2/1 today that the owner claims is rented at $800 or $850 a month, couldn't remember which (according to my agent.)  It's listed at $115k, but was built in the 1800's, needs a new roof, has water damage in the upstairs ceiling and while I was standing outside on a completely dry week the sump-pump in the basement kicked on.  Made me realize the drain line for it no doubt freezes in the winter.  The tenant has closed off the upstairs with plastic sheeting and moved her bed into the living room because she couldn't keep the upstairs heated.   Personally I think she's being screwed, if the owner was legit with the rent amount I was told.  Local, nice and well maintained 2BR apartments about a mile away currently go for $900.  Maybe I'm just not cut out to be a slumlord?

Here's an example I looked at today:

http://www.realtor.com/realestateandhomes-detail/1...

That house needs new carpet throughout - what's there is stained pretty bad - and kitchen appliances at a minimum, but really new countertop and vinyl sheet floor as well (although it's tiny so would be relatively cheap.)   If one of your kids rolled down the hill in the backyard you'd never find them again.  And as a 3/1 at about 910sqft it would rent around $900.  The basement is very damp, so I don't know what would be required to turn it into a second apartment, making it effectively a duplex.  If I could even get the permits to do so.  And I'd be taking a big risk because I'd have to pay utilities (not wired independent) and with electric heat that could be huge in the winter here.

Don't get me wrong - I didn't expect getting my first rental to be easy, but I thought I'd see at least something reasonable...

[JD Martin]

When you ask if this is unusual, I would say no because all markets are different. It could be that investors have drove up the price of suitable homes in your area, but rents haven't caught up to that fact. At some elevated point, the price of homes will outstrip the amount of rent, making the 1% rule not applicable in that market. If you go to the Bay Area or San Diego, getting 1% would be virtually impossible. 

Asking prices are meaningless except as an indicator as to the general direction of the market and whether or not you can work with the seller. In a hot market I recently bought a house for 45% of the original list price, and this was on the MLS. I found a property that the sellers were willing to work with my cash deal, quick close and they wanted out (estate sale). I legitimized my offer with strong earnest money and a detailed analysis on why my offer was fair.

If you are working with bank funds, you lose this point of leverage but everything else stays the same. Look at your MLS and see what's been on the market for a long time and/or has had several price drops. Go see why. I bought a house once that sat on the market for 400 days as a foreclosure because it stunk so bad of cat piss that no one wanted to take a gamble on it. I bought it at about 35% of ARV, figuring that worst case-scenario I would pull up hardwood floors, subfloors and the bottom level of drywall/plaster. It turned out to be all surface damage, and a good sanding and sealing solved the problem. House has been one of our most profitable, and I guess everyone else who saw it saw a cat-piss stinking house instead of a pile of money.

[Tony Maro]

I'm not sure how much rent could even go up.  Average household income in our county is $33k.  That's household, not individual, and is tilted on the high side because we have the Greenbrier resort here with all the $1M+ houses on it.

That said, our county was the one hit in WV by the flooding last June (including my own home) and a lot of houses were washed off their foundations and families displaced.  I'd guess that the immediate shortage of housing after the floods has driven prices up, and probably temporarily.  Maybe this just isn't the time to jump in.