When looking at areas to buy single family rental properties, it's important to narrow your search to specific neighborhoods, within the zip codes or market area you are targeting.
One rule of thumb when analyzing neighborhoods is to look at the price to rent ratio. In Houston, many investors are happy receiving 1% of the sales price in monthly rents. Example: a $100k house rents for $1k/mo. Obviously, getting 2% of the price in rents is the goal. I've heard of investors buying for around $50k and maybe put $20k in repairs, and nearly getting 2% in rents.
The 50/50 rule is an estimate of cash flow. It says that 50% of your rent will go towards expenses, and hopefully the property will cash flow for a minimum of 50% of the rent collected. Example: $1k/mo in rent, while PITI, maintenance, and vacancy account for $500/mo. So the net cash flow is $500/mo, and meets the 50/50 rule. This rule can be very tough to meet, especially if the landlord is financing at a high interest rate, insurance is high due to the house being in a flood zone or a coastal county, and more than a few weeks a year of vacancy.
Please let me know if you need help analyzing neighborhoods, or are looking to buy property. DE
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