digest
Short Summary
Main recommendation: For cash flow rental investing, focus on markets with a high rent-to-price ratio (RTP), where median rent is large relative to median home price; the video's top six are Brownsville TX, Memphis TN, Kansas City MO, Baltimore MD, Gary IN, and Detroit MI. The speaker explains that cash flow is getting harder to find because rent growth has lagged home price appreciation, and RTP serves as a rough proxy for cash flow potential.
Key Points
- The six cash flow markets, in order: (1) Brownsville, Texas; (2) Memphis, Tennessee; (3) Kansas City, Missouri; (4) Baltimore, Maryland; (5) Gary, Indiana; (6) Detroit, Michigan.
- Why cash flow is harder now: Rent growth has outpaced income growth for years, and rent has not kept pace with property appreciation. Since 2005, housing prices rose 35 percent while rent rose only 21 percent.
- RTP metric: Median rent divided by median property price. The speaker says an RTP of 0.5 percent or above is worth considering, and above 1 percent is excellent.
- Trade-off: Most listed markets had negative 10-year price appreciation, though the speaker notes recent price increases in several of them.
Details Worth Noting
- Concrete instructions: To screen a market, take the median rent in the city and divide it by the median property price to get RTP. Treat 0.5 percent or higher as worth considering and above 1 percent as strong. Check population growth and income growth as signals of future performance. For a rough cash flow estimate on a deal, the speaker's Memphis example assumes a median-priced home, 20 percent down, and a property management company, with a low 1.6 percent tax rate.
- Brownsville: RTP 1.02 percent, population growth about 0.4 percent per year since 2010, income growth 3 percent per year (highest on the list), 10-year appreciation negative 1.6 percent, with recent price growth reported.
- Memphis: RTP 1.04, best 10-year appreciation on the list at negative 0.7 percent; the speaker estimates about 4K year-one cash flow on a $103,000 home with 20 percent down, roughly a 20 percent cash-on-cash return.
- Kansas City: RTP 1.04, average rent growth 6.6 percent, population growth about 0.7 percent per year since 2010; property prices have been declining on average since 2010.
- Baltimore: RTP 1.25, 10-year appreciation negative 3.5 percent, sale prices up over 30 percent year over year, income growth averaging 2.7 percent per year; the speaker cautions about COVID-related distortion.
- Gary: RTP 1.89, home prices down about 5 percent annually since 2010; the speaker estimates about 9K down and four to five thousand dollars year-one cash flow on the median home with 20 percent down.
- Detroit: RTP above 2 percent, the highest of the list; home prices fell about 4.7 percent annually since 2010 but the median sale price rose 37 percent since March 2020, which the speaker says may be inflated by pandemic-related housing market effects.
- The speaker frames the figures as data from BP Insights and notes that these are broad market-level averages, not guarantees for individual properties.
Bottom Line
Cash flow is still available in several markets with high RTP, but investors should weigh the strong rent-to-price returns against weak historical appreciation and possible pandemic-driven price swings.
