New to Real Estate · Arlington, TX · Member since 2008 · 12 posts · 8 votes
Would you buy the following opportunity and why/why not?
- Market is very high priced such that getting a 1% rule off MLS is extremely rare
- MLS listed, move-in ready, C+/B- property in a C+/B- neighborhood
- Property is a full duplex leased at $850 and $650 per month
- Leases are month-to-month so rent could be raised or tenants replaced with relative ease
- Rent-o-Meter shows the median rent to be $1300/unit and average to be about $1100/unit
- Driving thru neighborhood a neighbor said he pays $1000/mo for similar/identical and is a multi-year tenant
- Assuming $1000/mo/unit yields ~$125/unit cash flow and ~23% COC Return (10% reserve each for Vac., Mgt, Rep & CapEx)
This all sounds too good to be true but here's the kicker: Rent-O-Meter shows the average rent trending significantly downward from about $1450 to $1100 over the last 24 months.
So, my question is do I pursue what looks like about as good a deal as exists in my market (at least with on-market properties) or do I take the falling rent as a significant red flag?
Look Not everything is going to fit into a calculation or algorithm. If the numbers work then do it . People will always need a place to stay and that home will always have value . Practice your due diligence and don’t let news articles ,predictions ,or some website scare you out of an otherwise good asset
Look Not everything is going to fit into a calculation or algorithm. If the numbers work then do it . People will always need a place to stay and that home will always have value . Practice your due diligence and don’t let news articles ,predictions ,or some website scare you out of an otherwise good asset
@Michael Reach no one has a crystal ball when it comes to property cycles. You can cut risk however by not overpaying. IMO it has to cash flow especially in a high market so it will still cash flow if we hit a bump. Other folks invest for market appreciation figuring they will overcome losses that way. For me, if it does not beat the 1% rule I'm probably not pursuing; today that leaves me with distressed properties (that I can rehab) from discouraged LL looking to get out.
@Michael Reach I would verify that the rentometer data is accurate regarding rents going down. They draw their data mostly from rental LISTINGS not actual leases so if a few properties in that area were listed low for whatever reason, maybe even a mistake or typo somebody made when entering listing info, it could be throwing the algorithm off. I’ve found rentometer to be accurate for my area mostly but in a few cases I’ve found it to be way off as well. I’ve heard that in some areas it is not accurate at all. Suburban and rural areas tend to have less data because there is less rental activity and rentals are dispersed over a larger area so that could be a factor for this property. Also one anomaly could impact the results causing an inaccurate representation of the actual rent trend for that immediate area. So I would use some additional more organic methods to verify the rentometer results and conduct some research into whether rents have actually gone down in the area such as by speaking to local PMs, reading local RE industry reports and articles, looking up comparable listings, speaking to as many tenants and RE agents in the area as you can, google, etc. and if some or all of these sources confirm what rentometer says then try to determine what might be causing rents to decline (if indeed they are). It could be something temporary like road construction or a few rentals being listed In the winter when it is harder to place tenants, or something else that won’t effect the property long term. Rentometer is a quick and helpful tool but it’s much better to know your market intimately.