digest
Short Summary
Main recommendation: Research a rental market in two stages: first gather macroeconomic market fundamentals (population growth, jobs, income, employers, crime, schools, regulation), then check housing market conditions (prices, inventory, taxes, insurance, rent, and two ratios), comparing each candidate market on a shared worksheet. The video demonstrates this with Huntsville, Alabama, which the presenter says shows strong fundamentals but a low rent-to-price ratio that suggests weaker average cash flow potential.
Key Points
- There is no single "best" market; the right choice depends on your priorities, such as appreciation, cash flow, or a combination, so set those first.
- Build a short list of five to 10 markets, drawing from nearby areas or published best-cash-flow and best-appreciation lists.
- Population growth matters because it drives demand; FRED (free, from the Federal Reserve Bank of St. Louis) can chart a market against the national average.
- Huntsville's data looked strong on jobs and wages (2.1% unemployment, 5.5% wage growth vs. 3.5% inflation), but its rent-to-price ratio of about 0.46% suggests limited cash flow.
- Use the two calculated ratios as rules of thumb to compare markets, then verify with actual deal analysis.
Details Worth Noting
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Concrete instructions:
- For objective stats, use FRED: pull the market's data and add a second line for the national average (for example, population growth in Huntsville ~2% vs. ~1% nationally).
- For subjective items, search local sources such as the Chamber of Commerce, local government websites, and local newspapers for biggest employers, X factors (infrastructure spending, business relocations, business climate), and regulatory environment, especially for short-term rentals.
- Check crime against the national average on Niche.com and research public schools, noting that suburbs may matter more if targeting family tenants.
- For housing conditions, use Redfin, Zillow, or Realtor.com for median home price, price change over one and five years, inventory, property tax rate, insurance cost, and median rent with growth rates.
- Calculate rent-to-income: monthly median rent × 12, divided by median household income (Huntsville: about 29%; tenants are often budgeted at about 30%).
- Calculate rent-to-price: monthly median rent divided by median sale price (Huntsville: about 0.46%, suggesting low average cash flow).
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Huntsville figures cited: population growth 2.1%; median household income ~$61,000; homeownership 58%; median age 37; biggest employers include the U.S. Army, medical facilities, NASA, and Boeing; crime below national average; median home price $315,000 (flat last year, up 46% over five years); inventory up 12%; property tax about 0.36% (national ~1%); insurance about $1,500 per year; median rent $1,463 (3% year-over-year, 5% over five years).
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Caveat: the presenter says the research took about 15 to 20 minutes the first time and may drop to five to 10 minutes later, and that the rent-to-price ratio is only a rule of thumb, not proof that deals will cash flow.
