Price-to-Rent Ratios for MFR

[Jordan Carnes]

Hi Everyone,

I'm just getting started in out-of-state investing and am in the process of narrowing down the market I want to invest in. I've been looking into areas like Birmingham, Alabama and Indianapolis, Indiana for multifamily residences, but figured I should be going about this a little more analytically. I read previously that price to rent ratios above 16% were considered favorable for buy and hold investors, but wanted to get the community's thoughts on how you incorporate these ratios into your analysis on the macro (different markets) and micro (inside a specific market) level.

Do you shoot for a specific number when looking at markets from a macro level?

How does this number affect your decision on the amount you're willing to spend rehabbing a property?

Should I be prioritizing this number over other numbers? ie: job growth, population growth, etc.

Thanks in advance everyone!

Jordan

[Tal Simpson]

Yeah tomatoes, tomotoes on the rent/price ratio method, both ways work!  We are going to have our property inspector go through every unit and all building structures, so we will hopefully have a good feel for the physical condition of the property.  Some other things to investigate relate to the current tenant base and property manager - fortunately the owner is also a principal in one of the top local real estate companies in town (and they manage it), and we know this neighborhood well.  I've also been out to see the property several times and have had no problem getting financials and updated rent rolls - so we think we've mitigated a lot of the risk by finding out as much as possible.  In Birmingham, that is a solid but not unheard of rent ratio for multifamily, especially for an off market deal.  Although, they are getting hard to find unless you can form relationships with brokers.

Good luck, I think Birmingham is a great market to look at.