If you’re frustrated trying to find a rental property investment that creates solid cash flow, you’re not alone. Cash flow features are hard to find right now! But don’t worry, we’ve created an interactive map that can help you select a market where rental property investors can earn excellent cash flow. But before we get to the (very cool) map, let’s talk about the state of cash flow real estate investment in 2021.
On the one hand, good things are happening for cash flow. Rents are actually rising fast now! According to the latest data from Zillow, the average rental price in the United States has increased by 11% over the year, until August 2021. It’s huge! In the context, in a typical year, the average national rent increases by only 2% to 4%.
This trend bodes really well for existing rental property owners, who have already locked up their mortgages and are now expected to see improved cash flow. It is also important to note that while inflation has recently posted an ugly figure of around 5%, rent increases are almost doubling that number. So investors who already own some rental property are increasing cash flow in real (inflation-adjusted) dollars. This is welcome news for any existing rental property investors.
But that’s where the party ends. For investors who want to make their first deal or expand their portfolio, finding solid cash flow may seem almost impossible. And it is unimaginable! The data says that it is actually very difficult to find cash flow from 2011 to date.
The reason is simple: although rents are rising, housing prices are rising faster. According to the same Zilo data, medium home prices have risen 18% year-over-year. As home prices rise, so will the cost to an investor, as their mortgage is their biggest cost to almost all investors. When the growth of mortgage payments exceeds the growth of rent, creating cash flow creates difficult weather.
It’s easy to blame the epidemic for this, but the trend really started in 2011. To measure the probability of cash flow in any investment market, I would first like to look at the rent-to-value ratio (RTP) that market RTP compares the average monthly rent of a market with the average house price of that market and with this metric cash flow (.86) Intimately related. Basically, when the RTP increases, so do the cash flow possibilities. When the RTP goes down, so do the cash flow possibilities.
As you can see from the chart above, RTP has been steadily declining since 2011. The reason for this is again, because the increase in the price of the house during that period has exceeded the increase in the price of rent. Of course, this is not true in every market, it is a simple look at national level trends.
What steps can you take
But despite this depressing trend, there is still hope. There are many good markets that generate strong cash flow for rental property investors. Can you ask any questions? Well, check out our brand new interactive RTP map below and see for yourself. We have data from almost all zip codes in the United States. The green color is as good as the possibility of cash flow. And keep in mind that if the RTP is above 1% you get a nice market (this is the 1% rule above all). But as I have shown in some recent analyzes, any market or zip code that has .7 RTP or higher warrants is considered. Remember, these are just average. As a rule, this means that there are deals in the market that are both better and worse than average. It’s your job as an investor to find a great deal.
So go there and see if you can find a great market that creates strong cash flow possibilities for rental property investors. You can zoom in and pan around to find the market of your interest. Have fun exploring and I would like to hear any markets you are interested in in the comments below.
Also! This is the first time we’re posting something with interactive data in our content, so we’d love to hear your feedback on the comments. Is it useful? Do you want to view any other data? Can we do better? Let us know!