Hi RE experts,
Looking for places in the US where one can get at least 1% rental return rate., i.e. If the property is $100k then the rent should be $1000.
Is this 1% too ambitious, if so what’s the norm?
I know a friend who does 1% in North Carolina, so wondering if there are other places
Thnx
I think Bay Area is .1/3%
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Good to know
1% a month is 12% a year. After you deduct all the non-mortgage expenses like property tax, insurance and property management you will have about 8 or 9% cap rate. That’s impossible in Bay Area. The best you can hope for is 5%. The norm is 3 to 4.
I have found that if you 0.5% of purchase price as monthly rent you will break even. Even that is difficult in Bay Area. I see some SFH’s in East Bay like San Leandro and lower price condos/townhomes in SF satisfy that requirement.
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Fresno, Bakersfield etc. Vallejo, Merced might be good as well
There are quite a few market in the mid-west like Memphis, Atlanta to get you 1%. They used to get you 2% but now it is compressing to 1%.
Austin can probably give you 0.8% but TX has higher property tax to consider, so using CAP rate might be better to compare apple to apple.
Here is the PDF that gives 2016 Cap rates from CBRE
Here is the good post about cap rate.
https://fundrise.com/education/blog-posts/whats-a-good-cap-rate-for-an-investment-property
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I looked at CBRE’s cap rates and it seems pessimistic. I have seen properties in Orlando and Tampa with 8, 9 and sometimes even 10% cap rates. But CBRE said it’s at most 6% in these areas. Granted the report is from last year, but what do folks think of their numbers?
We have one strong advocate of the Austin market on forum. But @myo you seem to be more hesitant. I’d love to hear your take. 
Yes, I have seen this too. They may be giving average data, but specific locations, Florida is always on Top, next comes midwest.
Austin is strong market. Quality tenants with strong economic potential (and tech too). My house has appreciated probably 10% in last 18 months. But property tax is the killer since it can turn your cash flowing property into cash flow neutral just because property price increases hence taxes too. It is great that it appreciated, but I am not looking to sell yet. Today you can invest and probably can get 5-6% CAP, and potential for appreciation too. Personally, Austin is in the middle ground between BA (almost purely appreciation play), or mid-west/inner cities (cash flow only). Austin can have both (it has been). Your call 
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I have thought about this for a long time. My thinking is for my next step I want to take care of my income. That’s why I have been studying various markets all over the country. I am looking at pure income play for the next couple years.
But I don’t like the Midwest. Its economy is in secular decline and population is shrinking. I still like central Florida the best. Population is growing there and property tax is around 1% like the Bay Area. Appreciation will be virtually nonexistent but that’s fine.
Unless you take advantage of mortgage leverage, cash flow is better in dividend aristocrats and REITs, but this leads to stocks.
Going forward, I do not want to have any big mortgages as my current combined fixed mortgage payment runs into enough my life !
I am moving to stocks, mainly dividend payers, growth tech companies. So far YTD return is exceeded my expectation (10%) with 13.5% retirement account and 14.75% taxable account.
I do not trade daily, but watch for good fallen stocks, do my research whether they are good to buy and hold.In this too, I prefer dividend payers like QCOM. I am satisfied that my judgement is right on this when big master did the same.
Yes, Seth Klarmann also bought this stock recently.
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Which regions do you like? Hurried Caned Tampa and St. Petersburg or Micky Mouse Orlando?
Kathman says valuations are perilously high and is holding 30% cash!
Tampa has better cap rate and I have a good friend there who can keep an eye on things for me. Orlando’s economy is overtaking Tampa but cap rate is lower. I will need to make a trip to see for myself.
Warren Buffet and Seth Klarmann cash flow comes from dividend or other income. They do not reinvest automatically, but invest only when there is an opportunity. For them, keeping 30% cash is very common.
I do not know why “Kathman says valuations are perilously high” while Current SPY average P/E is still low (23.44) compared years 2007 !
For economy reaction, we just need to watch FED action, that is more than enough. Even with three rate hikes (so far), many companies are reporting Q/Q growth over years.
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I have briefly considered Tampa. Why are you not worried about hurricanes?
Hurricanes just mean that there is potentially higher maintenance cost. There are two types of houses in Tampa. One type is built with wood, like what we have here. Another type is “block houses”. Agents will mention that specifically as a selling point. I also like the area around University of South Florida, which is farther inland away from the coast.
I grew up in Hong Kong. We have 4 or 5 hurricanes every year and life goes on.
But I will do some homework on how much additional maintenance and insurance cost there is in Tampa.
Is Austin property tax increase in proportion to property value appreciation? If your house value doubles, how much does property tax increase?
When Austin house price decrease by 50%, does property tax also decrease a large percentage, close to 50%?
Arizona property tax increase is minimal. When home value doubles, AZ property tax may increase 4%. I think AZ property tax increase is lower than California’s Prop 13 increase, or at most comparable.
I downloaded the CBRE 2016 H2 report. Bay Area leads the nation in low cap rates:
Among stabilized Class a infill assets, san Jose had the lowest cap rate in the u.s. at 3.75%, followed closely by san francisco, san diego and los angeles, all at 4%. five markets had cap rate averages at or below 4.25%: new york, northern new Jersey, miami, orange County and Portland.
…Appreciation…Cap Rate…Total
Cupertino…bought in 2011…10.6%…3.5%…14.1%
Austin (78759)…bought in 2014… 10.3%…4.9%…15.2%
Note:
(1) Appreciation according to Redfin’s estimate
(2) Cap rate for 2016
At today’s high price, cap rate would be cut by half.
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