Invest in neighborhood with falling rent (downward trend)

[Michael Reach]

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?

[Dennis M.]

@Michael Reach

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