In your neighborhood, how much cheaper (%) per month is it to rent than "own"?
Hint - for those looking to call bottom in housing, there's your key number...
Showing posts with label housing p/e. Show all posts
Showing posts with label housing p/e. Show all posts
July 07, 2008
HousingPANIC Stupid Question of the Day
April 16, 2007
The traditional 100x to 120x rent to purchase price equation is now laughable, wouldn't you say?
I've always known that real estate investors (real ones, not the fake ones these past few years) use a 100x or 120x rule of thumb when evaluating potential rental properties to purchase, so that a 10% to 12% ROI before expenses could be achieved. Even a trained monkey wouldn't buy a property with a negative ROI after expenses, unless he was a gambling monkey, vs. an investor monkey.
So, are you laughing yet? Or crying? Because we all know that rule of thumb not only got thrown out the window, the thumb got chopped off too. Places are going for 300x and 400x rental income now.
Take my old loft in Arizona. I tried to rent it (before I woke up and sold) for $1000 a month and had no takers, figured $800 would be right.
$800 x 120 = $96,000. Yet the place sold for over $300,000.
See the problem? Plus then you've got the stupid always-rising condo association fees, taxes, maintenance and not being able to rent the unit out. "Investors" were just gamblers betting on future appreciation, and now they've lost. Big time.
So do the math with your place - give us real examples. And we'll laugh and laugh and laugh and laugh, because we all know one day the 100x to 120x rule will apply again, we know rents ain't gonna be going up, so you know what that means... Watch out below!
It would be fun to go look at condos or houses with a real estate clerk, ask how much the place would rent for, then offer 100x. Oh, man, would that be fun. Especially when the place is being offered at 400x.
Look to achieve 12 per cent rental return "Some landlords are happy to receive eight, nine, or ten per cent rental return however I feel that a 12 per cent return is achievable and that is my benchmark," Mr Ahuja explained.
"I use the simple 'rule of 12' when deciding if a property is worth investing in; take the purchase price, divide by 100 thus giving the monthly rental figure that needs to be charged to obtain a 12 per cent gross yield. "For example if a property is priced at £100,000, divide by 100 giving £1,000. If the monthly rental figure (£1,000) can be achieved in the area then go for it."
So, are you laughing yet? Or crying? Because we all know that rule of thumb not only got thrown out the window, the thumb got chopped off too. Places are going for 300x and 400x rental income now.
Take my old loft in Arizona. I tried to rent it (before I woke up and sold) for $1000 a month and had no takers, figured $800 would be right.
$800 x 120 = $96,000. Yet the place sold for over $300,000.
See the problem? Plus then you've got the stupid always-rising condo association fees, taxes, maintenance and not being able to rent the unit out. "Investors" were just gamblers betting on future appreciation, and now they've lost. Big time.
So do the math with your place - give us real examples. And we'll laugh and laugh and laugh and laugh, because we all know one day the 100x to 120x rule will apply again, we know rents ain't gonna be going up, so you know what that means... Watch out below!
It would be fun to go look at condos or houses with a real estate clerk, ask how much the place would rent for, then offer 100x. Oh, man, would that be fun. Especially when the place is being offered at 400x.
Look to achieve 12 per cent rental return "Some landlords are happy to receive eight, nine, or ten per cent rental return however I feel that a 12 per cent return is achievable and that is my benchmark," Mr Ahuja explained.
"I use the simple 'rule of 12' when deciding if a property is worth investing in; take the purchase price, divide by 100 thus giving the monthly rental figure that needs to be charged to obtain a 12 per cent gross yield. "For example if a property is priced at £100,000, divide by 100 giving £1,000. If the monthly rental figure (£1,000) can be achieved in the area then go for it."
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