File this under “you can’t make this up”.
RealtyTrac has developed a list of the “20 best markets to purchase single family rentals” based on cap rates and cashflows. According to the study, these markets offer great opportunities for “conservative” individual investors.
And let me tell you, RealtyTrac didn’t disappoint. The list contains some of the perennial favorites of conservative investors like Detroit (MI), Phoenix (AZ), Las Vegas (NV). Not to mention a half dozen markets in Florida and several rust belt cities like Dayton and Toledo (OH).
Most importantly, RealtyTrac managed to say all of that while at the same time, keeping a straight face.
Oh how quickly we forget. Next thing you know, we will be bringing back other “conservative” favorites like the 80/20 subprime mortgage, Triple A rated second mortgage backed securities and start using our homes as ATMs again.
Do me a favor and never forget to ask WHY. Cap rates are high in those markets? Why? Could it be that they have to be that high to even stand a chance that any investor would touch them with a 10 ft pole?
The more things change, the more they stay the same.
When calculating cap rates in these safe rental markets, did they perchance mention how long it takes to rent one of these gems? Or, is 1 day turnover assumed in these markets?
Exactly.
They just used asking rent over purchase price using 40% expense factor. But in many of these markets, you would lose several months of rent before you got a tenant in. Then, that tenant isn’t likely to stay long term.
Once you include vacancy, turnover and make ready costs I doubt if cap rates would break 7% in 90 percent of those markets.
What cap rates are you getting in Houston currently?
On quality investment grade properties, 8.0-9.5%