Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Purchase price and rental price are not necessarily connected. The appropriate rent for a property is what the market will bear. The appropriate price to buy a property is again what the market will bear.
I do have a general rule of thumb - I look at the monthly rent that the property would bring, allow 3 -4 months rent/year for property taxes and expenses. I multiply that times five. I then subtract the costs of bringing the property up to rental condition - if needed: roof, repainting, HVAC, kitchen and bath repairs, etc. That's what I consider then to be the "5 year price". That's a good buy, then.
What is the monthly rent price for a $168K property.
Rent rates are based in competition... what the 'market' allows or demands.
And those questions are all local.
From the prospective owners end of things you can add up all the known expenses
you'll have (PITI, utilities, upkeep, repairs, etc) and compare that to the 'going rate'.
If the tenants can't be expected to pay for everything...
Location: Formerly Pleasanton Ca, now in Marietta Ga
10,351 posts, read 8,572,211 times
Reputation: 16698
It's all market driven. I've owned $600k homes in California where I collected $2k a month in rent. I have homes in Wisconsin now that cost me $60k and rent for $1200 a month.
The rent price is / should be what someone is willing to pay in your area, not a calculation based on what you paid. You can figure out before buying if what you are going to pay will be covered by what you can expect in rent.
Before you buy, evaluate what rent you think you can get and from there you can decide what you want to pay. If the seller won't accept your offer, move on to the next property.
Another way to ask is: what is payback period for rental property? Based on that, I can work back the monthly rent price.
No one cares what you bought it for except you and your accountant.
The rent price is what the market will bear. Despite the disdain that some landlords here express for the renting classes, the renting classes aren't that stupid. They won't pay $1,700 when similar houses up and down the block are renting for $1,000.
A long time ago there were some quick and dirty calculations that worked here.
A generic rental is worth 7 to 8 times gross and I have bought fixer property at 7 times gross and spent about a month getting it rent ready... a couple of thousand plus my free labor.
Another is rent should be about 1% of value.
So a 100,000 property would rent for $1,000
The first example also works out because a $1000 a month would be $12,000 annually and 8 x 12k is $96,000
I can show you $500,000 rentals renting for $2k per month... and even less.
As others have said there are many factors... the best is to pencil out your expenses plus a maintenance factor and vacancy allowance and compare to the reasonable market rent in your area...
Most will figure the interest part of the mortgage only as the principal goes to equity...
Then you have to figure when it is all said and done will you have to "Carry" the property or will it Cash Flow?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.