The Real Cashflow Quadrant – Turn Key Rentals Heat Chart 4/2016

My opinion of Turnkey markets (12-2015) Lane

I’m going to take you back to high school math class for a moment.   Remember the 4 Quadrants, they are labeled Quadrant 1 in the North East quadrant and Quadrant 2 in the North West…etc. The above graph only shows Quadrant I. To put it simply these markets in Quadrant 1, have median home Rent to Value ratios above 1% (a 100k property rents for more than 1000 per month – 1000/100,000=1%). These are the markets that investors like as cashflow investments because the income typically covers the mortgage and then some.

Quadrant II (to the left of Quadrant I – North West Quadrant) are markets that have great appreciation however, produce negative cashflow because the rents don’t make up for the high home price/mortgage.  Some examples would be Seattle, California, New York, Hawaii, Portland, or San Francisco (typically <0.5% Rent to Value ratio).

Quadrant III (below Quadrant II – South East Quadrant) are markets with negative appreciation and negative cashflow. This is just the worst. Example would be Detroit because for all we know they will never figure out the water contaminations problems and you will not cashflow because you are going to have to carry a gun to collect your rent.

Quadrant IV (below Quad I – South West Quadrant) has negative appreciation and positive cashflow. It’s tough to find real examples but think of places that have positive cashflow and in declining neighborhoods/one economy driver towns.

Stay in Quadrant I and diversity within Quadrant I. For example get some Memphis/Birmingham to offset some Atlanta/Texas.

Regarding the above graph: this is my humble opinion of how a few of the popular investor markets relate to each other. I see all these markets as pretty much the same, its just what you are looking for on the appreciation and cashflow sliders. If you want to know where the data came from there is none but it is simply my UN-biased opinion (UN-affiliated).

SPC GET ‘ER DONE PLAN:

  1. Where do your investments fall in the Four Quadrants?
  2. If you are in Quadrant 2, just know that you are investing in appreciation (shame on you that is not Simple Passive Cashflow that’s called gambling).
  3. If you are in Quadrant 1, good for you. Fine tune your next acquisition to diversify yourself in Quadrant I.

Original BiggerPockets Forum Post

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3 Comments

  1. Ken
    May 27, 2016

    Nice chart, I have it saved in my notes.

    Reply
    1. Lane
      May 28, 2016

      Just realize this is my own opinion. Often times the best prospective is another person.

      Reply
  2. Cazare
    September 17, 2016

    This is great content

    Reply

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