Here's some I've always heard or followed - before this current bubble of course, where as with all other bubbles, the #1 rule seems to be "hey, it's different this time"
Here's my list. What did I miss?
1) You should not buy a property for more than 150 times the monthly rent
Take the loft I sold in Arizona. It would rent for $1000 a month (1 bed, 1 bath, 1100 sq. ft). So a fair price would be $150k. I bought it for $170k in 2002. But sold for $315k. So the 150 rule would dictate it would need to fetch over $2000 a month in rent, and that's not even close. During this bubble, rent has no relation to price. Bottom line is if you can't rent your place out and break even, worry.
2) You should buy a home for a maximum of 3 times your monthly income
I'm hearing in California we're at 10 times income, Miami is 6 times income. Ouch. Here's the income gap by state - notice Arizona now has the biggest gap. During this bubble, this rule got shown the door by Mr. Interest Only.
3) Location, Location, Location
Always the top one I thought. But now I'm seeing in Phoenix new homes being built next to the hum of busy highways (including some nice $800,000 condos near me), under airport landing zones, 2o to 50 miles outside the city center, under power lines, in bad neighborhoods. I guess during this bubble, location, location, location ain't in effect
4) Your house payment should be no more than 28 percent of your gross monthly income
Do the math for your area - I think Phoenix, SF, LA, Boston, Miami and others are wayyyy over 28%. And the bartender buying that $500,000 condo on $50,000 in income? Not even close during this bubble. But no problem getting that loan
December 25, 2005
Question for readers on "the rules" - what real estate rules and truisms have been tossed out the window during the current bubble?
Posted by blogger at 12/25/2005