Rental Rates =< Mortgage Rates

[Andrew Tran]

Hi all! I'm based in Houston, TX if that helps. Almost every house I look at has rental rates that would be equal to or less than what the monthly mortgage would be. How are you all navigating this market and finding rental properties that cash flow on a monthly basis?

[Kevin Sobilo]

@Andrew Tran, a deal isn't what's advertised its what YOU make out of it.

1. Experienced investors will often buy off market. That might be directly from a seller or a wholesaler or from some kind of auction.

2. When you look at listed prices off the MLS that is what they are ASKING! If you find a motivated seller in some kind of distress they may negotiate substantially lower.

3. You can buy a property and do something with it. You might convert a single into a duplex for example.

4. You might use different strategies to increase the income from the property. You might make it an AirBNB, or rent it by the room instead of to a single tenant, or rent the garage separately for added income.

5. You mention mortgages. The old saying is "You marry the property, but date the rate" meaning the property can be held a long time but you can refinance over and over. So, you might buy a property at today's rate and then in a couple years refinance at a lower interest rate lowering your payment and increasing your cash-flow.

There are many more things you might be able to do to "make a deal work", but its up to you to make the deal it isn't just what is advertised to you. 

[Andrew Tran]

Thanks Kevin! Lots a great ideas in there. Appreciate your response. 

[Nicholas L.]

@Andrew Tran

it's a good question.  and i give you kudos to notice this instead of trying to wishfully make deals work.  very little will cash flow right now on a traditional long term basis.  here's what i personally am doing.  2 things.

1. i will BRRRR something that breaks even on rent IF i can force a huge gain in equity.

2. i'm looking for seller finance deals.  very, very tough to find but then you have more leeway to negotiate terms instead of being locked into whatever the bank is offering.

both of those involve buying off market.

happy to dialogue further.

[Andrew Tran]

Quote from @Nicholas L.:

@Andrew Tran

it's a good question.  and i give you kudos to notice this instead of trying to wishfully make deals work.  very little will cash flow right now on a traditional long term basis.  here's what i personally am doing.  2 things.

1. i will BRRRR something that breaks even on rent IF i can force a huge gain in equity.

2. i'm looking for seller finance deals.  very, very tough to find but then you have more leeway to negotiate terms instead of being locked into whatever the bank is offering.

both of those involve buying off market.

happy to dialogue further.

 Thanks Nicholas! This is more in-line with what I kind of expected. I’ve been eyeing a few off-market deals that would allow me to pull out a good amount of equity after rehab, but then the monthly mortgage payment is the same as market rent. I guess the play in this scenario would be the cash from the cash-out refi and the equity growth on the rental property, but nothing in terms of a monthly income stream. Is this similar to how it plays out for you in your first scenario? 

[Bhargav Hirapara]

Look at nearby markets like Katy, The Woodlands, Sugar Land etc. where home prices may be lower than central Houston, providing better cash flow potential on rentals. The key is buying properties significantly below market value, keeping costs low through self-management and maintenance skills, and taking a long-term view to build wealth through forced appreciation and equity capture over time. Being patient and selective with your acquisitions is important in the Houston market.

[Nicholas L.]

@Andrew Tran

yes but when I say break-even i mean including all expenses, not just the mortgage. so - vacancy, property management, repairs, etc. typically capex is low for a bit if you BRRRR right - but a new furnace can still break =)

[Vivian Yip]

I'm in Austin TX:

Higher downpayment and cash flow negative balanced by appreciation opportunities is a strategy that a lot of investors I work with use. I feel so lucky that my personal portfolio was purchased using the low interest rates but that's not to say I won't purchase if I find a good deal. There are actually some GREAT deals in the outskirts of Austin right now for new builds selling to investors with 25% down and 5.5% interest rates!  Message me if you want more info on the community!

[Nicole Heasley Beitenman]

First, how long do you plan to hold, and second, what's your goal? I buy with the intent to hold indefinitely. I'm 33, so I know if I hold something 30 years, it's going to appreciate, and my main goal for investing is equity for retirement funds. Considering rents go up over time, I don't mind something that breaks even for a few years. If you're confident these properties will appreciate and rents will increase over time, a break-even deal isn't necessarily a bad deal as long as you have reserves.