Yield on a $310k house in a 4 percent rent growth market vs a $180k house at flat rents

Question

I've been holding land and I'm looking at putting some of it into an actual rented house, so I'm building the comparison from scratch and I don't trust my own conclusion yet.

Deal A: $310,000, rents $2,250, taxes $3,900, insurance $2,400, market rent growth has run around 4 percent, price appreciation has been strong. Gross yield 8.7 percent.

Deal B: $180,000, rents $1,550, taxes $2,700, insurance $2,100, rent growth basically flat for a while, prices flat too. Gross yield 10.3 percent.

On day one B wins on cash flow by a wide margin. But if A's rent compounds at 4 and B's at 0, A passes B on rent in about year eight and the gap keeps widening, plus A has the appreciation. B pays me now and A pays me later.

The chapter says the discipline is shifting toward cash-flow markets as appreciation slows. Does that mean I should take B, or does it mean I should take A but stop underwriting the appreciation and treat the rent growth as the only forward-looking input I'm allowed? I keep flipping depending on which spreadsheet tab I'm on.

Rena Expert · Accepted Answer

Your year-eight crossover is only real if the 4 percent holds for eight years, and that's a single number doing an enormous amount of lifting. National single-family rents grew about 1.3 percent year over year in early 2026. A market running 4 is either genuinely supply constrained or it's mid-cycle in a run that reverts. Pull ten years of rent history for that specific submarket, not the metro. Metro numbers hide the fact that the good school pocket did 5 and the rest did 1.

The more immediate problem with A is that you didn't list maintenance, capex reserve, or vacancy, and gross yield on a $310,000 house is a number that flatters. Run both at 5 percent vacancy, 8 percent management, and a capex reserve set off replacement cost rather than a percentage of rent. That last part matters because the roof, the HVAC, and the water heater on A and B cost roughly the same in dollars, while A collects 45 percent more rent. Capex as a percent of rent systematically understates the burden on the cheap house. Do it in dollars, $4,500 a year of reserve on a house that grosses $18,600 is a very different animal than the same reserve against $27,000.

Insurance is the other line I'd stress. You've got $2,400 on A and $2,100 on B, which is nearly flat in dollars, so wherever B is, it's carrying real premium relative to value. Ask the carrier what the last three renewal increases were before you assume that line is stable.

On the question as you actually asked it: the choice isn't A or B, it's whether you can find a house in A's market at B's yield. Those exist and they're usually in the submarket you'd drive past. If you can't find one, take B and underwrite zero growth, because then you only need the deal to work as it stands.

dpatel_re · Answer

Second the capex-in-dollars point, it's the single most common error I see in SFR models. Also, on B, check whether the flat rents are flat because incomes are flat. Flat rents with rising incomes is a supply story that fixes itself. Flat rents with flat incomes is a ceiling, and you'll hit it every renewal for the next decade. County-level wage data is free and takes ten minutes.

nicole_adeyemi · Answer

Land assessment ratio on both of those would tell you something. If A is $310,000 with $95,000 of land value and B is $180,000 with $18,000 of land value, you're buying two completely different assets even though both have a tenant in them. The structure depreciates and the dirt doesn't. Long run, the dirt is what carries the appreciation you say you're not underwriting.

angela_burke · Answer

Practical thing from the trades side: get an actual bid on the HVAC in B before you close, not an inspector's guess at remaining life. On the cheaper houses I get called to, the system is usually a 3 ton unit installed a long time ago and the replacement is $9,000 to $12,000 depending on whether the ductwork survives. That's most of a year's cash flow on a $1,550 rent, and it doesn't get cheaper because the house was cheap.

Yield on a $310k house in a 4 percent rent growth market vs a $180k house at flat rents

4 replies