All Forum Posts by: Art Perkitny

@Adrian Jenkins, as the comments above have already stated, cap rate (or any return metric for that matter) will usually correlate with various risk metrics. 

In the case of demand, we can look at vacancy rates for rental units to gauge if the market has high or low demand.

If we then compare the median cap rate for each location within each vacancy rate cohort between 0.8% and 16.3% we get this:

As you can see, at very low vacancy rates (i.e. high demand) cap rates are rather constricted. 

Whereas the vacancy rate increases so does the median cap rate.

The data above was collected from the census american community survey and is computed at the tract level.

Vacancy rates where computed first and split into cohorts that increment 0.1 percent. I then queried the data-set for each cohort and computed the median cap rate based on 50 percent of annual median rents divided by the median home value for each respective census tract.

I then filtered the data set for cohorts with 100 or more samples to eliminate any potential outliers. 

Link to Raw Data CSV

@Max Pallatt, the data backs up your notion. 

If we take a look at the change in median home values from 2014 to 2018 at the tract level, it's clear that certain blocks are going up, while a block next to it has gone down in the same analysis period.

@Matan Yaakov, it's difficult to predict definitively what area is upcoming, but one way of filtering the possible areas is to look at the short term appreciation of submarkets within the city. 

The following shows the area within Cincinnati and corresponding change in home values from 2014 to 2018.

The areas in orange depict increases while purple decreases. 

@BJ Gibbs

You should be able to find property with decent cashflow in Birmingham AL. 

The average rent to price ratio for the entire municipality is hovering at 0.67% and has been steadily rising for the past few years.

I would focus my search efforts on the western side of town if you are looking to maximize cash flow, just be carful about not investing in a part of town that is considered high risk.

Map below should rent to price ratios for census tracts in Birmingham. Data if from the American Community Survey 

@Symone Wright 

I would start by looking at the 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.

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

Hope this helps! 

Hey @Emily Segal, I think this map should help you in your research.

It displays the risk score(A to F) for each census block group in Baltimore. 

The scores are generated by looking at eight different risk indicators. 

The lower the score, the higher the risk an investor is taking on. 

I would suggest for a first time investor to look at C and higher areas.

Hope this help you! 

@Beatrice Chis Dearborn is going to be C area on average. 

Vacancy is running at roughly 10% and decreasing over the past few years.

@Kasey Gourley, glad you're finding it helpful! 

This is a tool that I have built and am currently working on. 

Feel free to check it out, a link can be found in my signature. 

@Beatrice Chis

The cities with highest cash flow will be places like Detroit or Flint.

The map below shows rent to price ratios for census tracts in Detroit. 

The darker areas signify higher yields.

As you can see, the areas surrounding the urban core will have the greatest returns. 

However, I would caution you on solely basing your investment criteria on high yields.

These location will be great on paper but will almost certainly create problems in practice and cause cash flow to suffer due to the high risk of investing in such places. 

@Adam Higginbotham

200k should be sufficient

Here are more detailed map views of the places you listed (the colors correspond to the areas risk score, which is a composite metric derived from eight different risk indicators)

Gresham Park

Grove Park

Decatur

South Atlanta 

Simply put, the better the grade the fewer risks you will encounter (Vacancy, Property Damage, Non-Paying Tenants, etc...)