Where are the 1% Houses?

[Michael Magee]

I am in the Raleigh/Durham NC market.   <2018 there were a few 3/2 houses here and there in sub $200K range.  Putting them in the .8-1% range. I was able to pick up a few.  Now, the home prices are rising so fast, that rents are not keeping up.  I am searching everyday for a deal that can cash flow.  But the home prices are so high and rents are not reaching anything close to 1%.  Most back of the napkin calculations put the houses at 0.5%-.07%.  Putting almost every deal into negative cashflow.

To make matters worse, inventory is very low.  There are almost no homes under $300K.

Has anyone had success in this type of environment?  Is there strategy that works in this kind of market?  Do I tolerate negative cash flow and take advantage of appreciation?    Will rents catch up?  

The market has changed and I don't know how to evolve my strategy.

[Andrew Garcia]

Hi @Michael Magee, the lack of inventory is not only with the lack of houses to buy. There is also generally a lack of rental inventory.

You could also try to bank on the appreciation. The home equity growth will generally outpace the negative cash flow.

If you lose $300 per month in cash flow, that is $3,600 per year in the red.

On a $300k house, at a 3% appreciation rate, you would be at $9,000 in the green.

You could also try looking at more cash flowing markets such as in the Midwest.

Alternatively, you can create the cash flow by doing a BRRRR.

Hope this helps! Let me know if I can be of any assistance.