Single Family Rentals: Where the Deals Are

Single Family Rentals: Where the Deals Are
  • Opening Intro -

    While many homeowners are still struggling to make monthly mortgage payments and to keep their heads afloat, some homeowners are looking around their neighborhoods and finding new home bargains that are just right for turning into a single family rental property.

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Indeed, a recent RealtyTrac survey of the 20 best markets nationwide for purchasing single family rentals reveals a number of bargains, homes that may be suitable for renting out to qualified tenants.

One-Percent Rule

The RealtyTrac list is especially appealing for the small investor or any individual desiring to take advantage of the still large inventory of foreclosed properties in numerous markets. Its list is of 3-bedroom homes, representing the typical house a family might rent. RealtyTrac also limited its findings to metropolitan areas with a minimum population base of 200,000 people and further restricted its findings to markets where the average gross monthly rate was at least 1 percent or more of the median sales price in that market.

For example, if you were to pay $150,000 for a home, then you would need to earn at least $1,500 per month in rent to make your investment pay off. With the one-percent rule, your tenants pay all their utilities. Fall short of the rule and your investment will not be a sound one.

Cash Flow

Your cash flow as an investor is an important consideration too. For rental properties that amount represents the difference between the monthly rent (income) and the costs (expenses) associated with that property. Thus, you should collect more in rent than what you would pay out including your mortgage payment, insurance, upkeep, property taxes and other expenses.

For example, for that $150,000 home, your total monthly expenses might come to $1,200 — then, multiply that amount by 12 and your total would come to $14,400. Divide that amount into $150,000 and your cap rate is 6.97 percent for a financed home. If you pay cash for a home, then your cap rate will come in higher. For financed homes, the more money you can put down the higher your cap rate.

Leading the RealtyTrac list is Memphis, Tenn., with one of the lowest median sales prices for 3-bedroom homes, averaging $72,065 according to its data. Average rents of $1.047 per month make Memphis an attractive place to rent with investors clearing $351 per month for financed property or $628 per month for cash purchase deals. Other markets performing quite well included Las Vegas, Atlanta, Orlando, Phoenix, Detroit and Kansas City.

Investment Purposes

Of course, if you do decide to buy a home for investment purposes, you need to know whether the home is a good deal or ultimately a money pit. Even the handiest investor can be blind-sided by a home with too many problems to justify the investment or neighborhood issues that can adversely impact home values.

See AlsoHow to Discover Your Risk Tolerance for Investing

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Categories: Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".