All Forum Posts by: Art Perkitny

@Jim Nelson 2k/month is defiantly going to be a stretch based on the relevant data. 

The graphic below, under the "bedrooms rent cohorts" header, shows the frequency of units rented for different amounts aggregated by number of bedroom. 

It seems that no units are renting for over $1,500 per month.

The graphic to the right shows the median rent for units be bedroom and shows that the median rent for a 4 bed is $1,139. 

The conclusion I would draw from this data is that there is no rental market for a home of this caliber in the area. You would likely have to drop the rent substantially to compete. 

As for whether or not a flip strategy may be better, I would suggest looking at the comps of recently sold homes in the area. 

Price wise, 224k per your appraisal, would place the property far left of the bell curve based on the distribution of home values in the area. 

Just something to consider as well.

Hope this helps 

- Art 

@Alfred Shoetan thanks, glad you found it helpful! 

An areas median income is actually used to compute the score, along with several other metrics. 

The numbers you see next to each rating are the average values for each of the rating cohorts. 

0.5 rent to price is the average value for that metric for all C rated geographies in this specific analysis

Hope that clear the confusion up 

- Art 

@Saransh Saxena

First and foremost, I would define my investing goals. That is, what is my appetite for cash flow vs appreciation. Also, how risk averse/affine am I. These parameters will help decide what kind of yields you are searching for, which you can use to filter down your list of macro markets.

Then I would start by looking at the macro market's fundamentals, that is the population, job and income growth over time.

After that, I would look to see what the rents and home prices are and how those are trending as well.

I would do a similar analysis, but at the sub-market level for the metro area you are considering investing in.

Other metrics that I find valuable to understand are household income, poverty, unemployment, and educational attainment. Also, the trend for the aforementioned metrics is also very important.

Since you are personally looking to relocate to the place you are investing, I would also suggest making sure that it's a place that you want to spend time in. 

Hope this helps!

@Kerry B. I would say that based on the data that the Kensington neighborhood is worth investigating further. 

If we take a look at the distribution of home values in 2016 vs 2018 within the neighborhood, its clear that home values have increased a decent amount by the movement of the peak of the histogram toward the left.

Digging down further to the block level, this trend continues. The blocks colored green are areas that experienced appreciation and he blocks that comprise Kensington are largely green.

All this suggests that the area may be turning around and may make for a good investment. I would continue to look into the data as well as talk with those on the ground to build a better notion of what is to come. 

Hope this helps with your research - Art 

@Courtney Benson here is a graph showing home values in Estabrook Park calculated from data obtained from the American community survey.

Taking a look, it seems that the home value distribution is bimodal with a peak in the low 30k and 70k cohorts.

If you are able to pick up a property in that lower range there may be an opportunity to build some equity via rehab. 

That being said, as @Marcus Auerbach stated above, the spread will be rather thin under the 100k mark so I suggest investigating other neighborhoods that offer more variation in home values. 

Hope this helps - Art 

@Jose Ortega cap rates will vary by type of asset as well as quality of asset. Type can be subdivided into single families, duplexes, tri/quadplex, and small, medium, and large commercial multi family. Quality likewise can be divided, typically into letter grades such as A thru F. 

One way of estimating average cap rates that I find rather effective for quickly determining an areas expected average return is to take the median annual rent and apply the 50% rule to get an NOI figure. Then divide this by the median home value.

Here is an example that I made for single families homes for the city of Cleveland. The data is taken from the American community survey. 

The darker colors correspond to higher average cap rates. 

@Josh Coup as others have already stated, the best way to learn a market is to personally go there and speak with the locals. However, when this is not possible or if you are trying to quickly analyze a large number of potential locations, the best thing to do is to look at the data. 

In order to gauge the "rating" of an area we first need to establish what we are scoring. I like to think of location grades as a kind of risk score similar to what a FICO score or bond rating is to a consumers creditworthiness or bond default risk. 

Next we need to decide what are the risks a location may posses and how to measure those risks. Risks in REI can be things like vacancy risk, non-payment risk, property damage risk, and so forth.

To gauge a locations propensity to exhibit these risks we can look at data such as poverty rates, household income trends, vacancy percentages, high school graduation rates, etc ... 

Hope all that makes sense. I'm going to leave you with a resource that I believe will help you in your search for a new location to invest in KC. The map below shows the rent to price ratios for various cities within the KC metro area. If you are looking for more cash flow and are comfortable taking on more risk I suggest looking into the areas shaded darker. These will be locations that will produce more cash flow on average each month.

@Account Closed 's advice and select a market and focus on analyzing the locations submarkets. 

That being said, I have a document that may help you with your search. The spreadsheet gives you a breakdown of all the MSAs and their respective populations, rental vacancy rate, 5 year income growth, 5 year pop growth, and rent to price ratio. The colors correspond to each metrics quality relative to the mean of all the data points. I have included the rent to price ratio to give you an idea of what cash flow may look like for each area. It's easy to find a location with econ and pop growth and low vacancy, but the yields may be rather low. I would consider compromising to get into a market with higher yields. The data is from the american community survey.  

MSA Spreadsheet Link

Hope this helps - Art 

@Robert Collins

Let look at the data

Rents have increases steadily 

Population is trending upwards as well 

And household income has shot up in recent years, while also being above the median for the state

All and all it seems like Fayetteville Ga is growing and worth taking a deeper look into

The data above comes from the US American Community Survey 

Hope this helps! 

@Simon Schermerhorn

To select a great market I would do the following:

I would start by defining my investing goals. That is, what is my appetite for cash flow vs appreciation. Also, how risk averse/affine am I. These parameters will help decide what kind of yields you are searching for, which you can use to filter down your list of macro markets.

Then I would start by looking at the macro market's fundamentals, that is the population, job and income growth over time.

After that, I would look to see what the rents and home prices are and how those are trending as well.

I would do a similar analysis, but at the sub-market level for the metro area you are considering investing in.

Other metrics that I find valuable to understand are household income, poverty, unemployment, and educational attainment. Also, the trend for the aforementioned metrics is also very important.

Other sources of data include: 

Census Permit Survery

FBI uniform crime report

Bureau of Labor Statistics 

U.S. Bureau of Economic Analysis

Climate data for weather risks analysis

Hope this helps!