It is important to understand that any investment carries some element of risk. However, for the Paraprin Single Family Home Portfolio, we take several steps to mitigate any risk for the client. The following are several ways in which we reduce risk exposure.
We operate in cities with high rent to price ratios (RtP). Memphis for example is the 7th highest RtP ratio city in the country. The RtP calculation shows you what fraction of the total purchase price you’re able to generate throughout the course of collecting rent each year. It follows, then, that the higher that fraction is, the better an investment a property is.
Source: https://www.biggerpockets.com/insights/articles/top-us-makets-cash-flow-q2-2020
We operate in cities with higher than national average rental occupancy. Memphis renter percentage of population is 52%, Houston is 53%, and Cleveland is 56%. The national average is 45%.
Source: https://www.governing.com/gov-data/census/city-renter-population-housing-statistics.html
We operate in mid-sized cities. Historically these cities are less volatile than larger cities like LA, New York, Miami. During the last downturn, Miami homes prices fell by 50% but Memphis and Houston fell by only 15% and 4.5%, respectively, and have since increased beyond 2008 prices. Therefore, even in an event of a downturn, the estimated sales price of the homes will remain constant and unchanged even during an economic downturn.
Source: https://paraprincapital.com/?p=158
We do our due diligence on every property we invest into. We look at every property through the lens of long-term rental income because even the homes we are selling, we often sell to other investors who want a long-term revenue-generating asset. We have experience and expertise in this space because to date we have maintained a nearly 100% occupancy rate.
We do not operate in the higher-end rental market. We invest in Class B and Class C properties wherethe rental price range is $800-$1500, which is the price range with the highest occupancy rate. In addition, Class B and Class C properties are working class and service class properties respectively. Anyone in the professional class or working class wishing to downside due to an economic downturn, we would be available to capture that demand.
We acquire homes at 50-60% ARV (after repair value) so there is a significant buffer for the homes to resell. Even if the ARV is lower, we can still make a profit at the sale of the property. For rental homes, if homes prices are depressed when we refinance our portfolio, we can refinance again when home prices recover one to two years later.
