All Forum Posts by: Leela Gutta

@Leela Gutta, you asked about cash-flowing markets. I don't know if you already know what I'm going to write about now, but I'm just writing for the least experienced person reading this. 

A way to try to determine cash flow is the price to rent ratio. Price / gross annual rent = Price to rent ratio. Another way to try to determine cash flow is the 1% rule. One month's rent divided by the purchase price is 1% or greater. 

Now some simple math. If one months' rent being 1% cash flows, that means if the annual rent (12 months) is 12% the property would cash flow. The property price is 100% of the property price obviously. Price of 100% / gross annual rent of 12% = 8.33 price to rent ratio = 1% rule market/property. 

However, you're not going to find many markets with an 8.33 average price to rent ratio. Some that do are troubled markets. But if you try to stay somewhat near it, you can definitely find some and then screen the list down with other criteria to get to your chosen market.

I would go to the Zillow Home Values site to look up the median home price in many, many, many markets. I would get a $19 subscription to Rentometer (can be temporary) to look up the median rent in many markets. Take the Zillow number and divide it by the Rentometer number times 12 and you have your ratio. 

I did that about half a year ago for many markets. I also screened down with other criteria and ended up with this list. I don't know much about these markets. Their numbers on a couple of metrics looked attractive. This is very much a do your own research too situation. 

• Tuscaloosa
• South Bend
• Des Moines
• Kansas City KS
• Columbia SC

If you want a list of those with just the lowest price to rent ratios, here's some:

• Detroit
• Jackson MS
• Birmingham
• Cleveland
• Dayton
• Kansas City KS
• Akron
• Hartford

All the cities I listed should hopefully be more "target-rich environments" than the SF Bay Area unless my math was off or my analysis is wrong. 

Good luck!

Thanks a lot for this detailed answer. It has been an eye opener on how to do research. 

@Leela Gutta I recommend investing locally on properties that you can see and monitor and maintain.  Its much easier to spot deals locally, know the best areas and trends, and avoid property management fees and troubles.  In SF bay Area you can be cash flow positive with 25% down, and after few years can easily generate 5-10% net profits.  Once things get back to normal, offices open, and immigration begins, flood gate of renters will open up and SF Bay Area rental (condo, apartment, multifamily) prices and rents will explode.  Its a matter of less than a year.  2022 summer will be good for rental RE investors in Bay Area.

@Leela Gutta  I highly recommend the Dallas/Ft. Worth area. Low cost of ownership, especially single family residences, and extremely high demand for rentals. In fact, in the DFW area we are looking at 14 to 17 days a lease is on the market. So very low holding costs between tenants. In fact, the last three rentals of mine that came up for renewal in the last year had new tenants apply, background checks completed, and first months rent + security deposit paid sight unseen. In all three cases they were waiting for current tenants to move out. Regardless of where you invest I recommend you also find a good property management company to manage your rentals too. Hope this helps.