All Forum Posts by: Art Perkitny

@Nathan Scott

It's possible to compute the rental vacancy rate for various markets within the country by using data from the American Community Survey

The formula is as follows:

The rule of thumb most investors use when underwriting is 7%. 

I suggest looking up the data for the location you are targeting and see what the renal vacancy rate pencils out to be. 

I would use it in lieu of the 7% conventional figure if it's higher. If the rental vacancy rate is lower, I would continue to use the 7% number just to err on the side of caution. 

Hope this helps! 

@Sachin Maskey

It's difficult to make a determination without actual numbers to look at. With that being said, the choice will depend on how you want your investment to operate. 

A class locations will typically have less of a "hassle factor" associated with them. Thats to say it will be a more passive asset for you. 

However, with lower grade ares, the risk is greater and so is the reward. 

The trick is finding a balance between these two factors that fit your personality as an investor. 

@Mohil Prajapati

This graphic should help you in your initial search. It displays the rent to price ratios for each neighborhood in Columbus. The higher the ratio, the more cash flow you will see (at least on paper). The locations with the highest rent to price ratios are such because the risk is greater. That is to say you may end up losing money to things like high turn-over, theft, vandalism, vacancies, etc... 

@Chase Swanson

The areas at the Southeast section of Albuquerque are going to be a mix of C/D (on an A to F scale) neighborhoods. Thats to say, they're not war zones but rather working class areas. With that in mind, as long as your underwriting is conservative, you should be fine. 

The areas that I would consider more of a "war-zone" would be the international district on the south-east part of town.

Here is a map that may help. It shows the risk score (A to F scale) for Census block groups in Albuquerque, which is competed by looking at data from the American Community Survey. 

@Thomas Ackley

What radius are you running the comps on? It's seems odd that nothing is coming back that fits your criteria. If there are truly no recently renovated comps in the neighborhood you are considering BRRRRing in then maybe it's not the best place to be employing this investing strategy. Especially if this is your first BRRRR.

Another way of determining the homes values of a neighborhood is to look at Census data. While it's not available at the property level, you can look at cohort data that shows the distribution of home values. This is rather useful when first researching a location to determine what an investor can reasonable expect to get after renovating a property. Here is an example for the Tremont neighborhood in Cleveland , OH

In this particular area, as you can see, there is a trimodal distribution of home values. This means, for example, that if you bought a house in the 50k range you could reasonably except to get it appraised at 125k after rehabbing it. 

Here is another example for the Cudell neighborhood in Cleveland: 

This time, the distribution of home values has only one peak, around the 60k mark. If you rehabbed a property in this neighborhood you run a much higher risk of not getting the appraisal needed to cash out refi your initial investment due to the small number of comps at the higher end of the price spectrum. 

Also, to your point on the cash flow being very enticing. I would be carful with getting caught up with the paper returns. A high cash flow area will bring it's fair share of complication that could easily wipe out those glorious cash flow projection. 

Hope this all makes sense and it's helpful to you! 

@Jonathan Tran

Glad you found value in my post!

It's difficult to say what thresholds each variable should have. This will depend on your investment goals and risk tolerance.  

And as you mentioned, if you get to picky with setting limits, you will find that no areas fit your criteria. 

The most important thing is to use the data to get an understanding of what kind of risks one is to expect in a location and to include those risks when underwriting your potential investment properties. 

@Jonathan Tran based on your experience, it seems that you have learned first hand that there is more to selecting a location to invest in real estate than just yields and low prices. 

Data sources such as the American Community Survey, also known as the annual Census, can help you judge a location by considering key market indicators. Some of the metrics that I find valuable to understand are:

- Population Total

- Population Age

- Home Values

- Household Incomes

- Rental Vacancy Rate

- Homeowner Vacancy Rate

- Poverty Rate

- Educational Attainment Rate (High School/GED & Bachelors)

- Number of Housing Unit

- Rent to Income Ratio

- Rent to Price Ratio

- Population on SNAPS (supplemental nutrition assistance program) percentage

- Property Tax Rate

- Median Age of Buildings

- Number of Structures by Units (SFR, Duplex, Triplex, Quadplex, etc...)

- Median Rents by Number of Bedrooms

- Unemployment Rate

- Employment Sectors Percentages

- Number of Building Permits Issued

- Foreclosure Rate

- School Ratings

- Crime Statistics

When you consider all the variables listed above you will be better able to judge a locations tenant quality.

Also take into consideration the direction in which each of these market indicators are trending. This will better help you get an understanding of not just where market is today, but also where it may be heading. You wouldn't want to buy into an area that is declining rapidly and where the tenant profile is decreasing along with the area. 

Let me know if you have any other questions, hope this helps!

@Dennis Nikolaev

I think you're correct to want to stick to larger metros for your first OOS investment.

Smaller markets are more susceptible to be overly reliant on one or two industries to keep the local economy afloat. Also, the infrastructure available to investors is smaller. 

With that said, it's hard to say what the cut-off in terms of population is. 500k seems like a decent baseline, since it still gives you over 100 MSAs to chose from while also not being all that small of a market. 

To help you with your search I have generated a spreadsheet that lists all the MSAs in the country ordered by population. I have included a few growth and quality indicators such as home values, rent, educational attainment rate, poverty, and food stamps rate (SNAPS). Each metrics also has a 5 year CAGR associated with it so you can see the trends occurring for each MSA. 

Link to MSA Comparison Spreadsheet

Hope this helps! 

@Douglas Gratz

Data sources such as the American Community Survey, also known as the annual Census, can help you judge a location by considering key market indicators, which I list below.

Some of the metrics that I find valuable to understand are:

- Population Total

- Population Age

- Home Values

- Household Incomes

- Rental Vacancy Rate

- Homeowner Vacancy Rate

- Poverty Rate

- Educational Attainment Rate (High School/GED & Bachelors)

- Number of Housing Unit

- Rent to Income Ratio

- Rent to Price Ratio

- Population on SNAPS (supplemental nutrition assistance program) percentage

- Property Tax Rate

- Median Age of Buildings

- Number of Structures by Units (SFR, Duplex, Triplex, Quadplex, etc...)

- Median Rents by Number of Bedrooms

- Unemployment Rate

- Employment Sectors Percentages

- Number of Building Permits Issued

- Foreclosure Rate

- School Ratings

- Crime Statistics

Also take into consideration the direction in which each of these market indicators are trending. This will better help you get an understanding of not just where market is today, but also where it may be heading.

Let me know if you have any other questions, hope this helps!

@Antonio Cucciniello

I have two thoughts on how to solve this problem

You could pull rent data from the American Community Survey. This data is tabulated at the zip code level as well as geographies smaller than zip code. They aggregate the data by bedrooms (see graphic below)

They don't, however, have rent data tabulated by bathrooms and square feet. 

The second option would be to crawl rental websites such as Hotpads, Craiglist, Zillow, etc...

This will yield much better results, however is much more difficult and almost certainly against their terms of service.