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I posted the same question in the Business forum, but after checking through the posts here I think it should be moved here instead.
I wanted to buy a property to rent out, probably a 2 or 3 story house (probably would cost about 400K). But I wanted to know from someone with experience renting what is the price vs. rent that justifies making a purchase. Because I want to make a good investment.
I mean if you are getting 3000$ in rent, is it still worth it if the mortgage is 3000$. Is there a certain formula or rule of thumb you use?
Maybe someone else with more experience can answer most of your questions, but I'd be concerned with buying a house that large for a rental investment. I don't know that there's much demand for something like that, especially in this market. The last thing you want is to be shelling out the mortgage and not have anything else coming in b/c it's sitting vacant.
When I said 2/3 story house, I meant a house with different sections so the first floor is rented out to one party the second is rented to another party. Usually they will have different meters too.
Multiple Units eliminate the all or nothing aspect of having a single rental...
I always prepared a cost sheet for every property prior to making an offer.
Debt Service is only one item... and then there is Taxes, Insurance, Scheduled Maintenance, Contingency Fund, Vacancy Allowance, Turnover Costs, Landlord Furnished Utilities or Services and don't forget Opportunity Cost of the money used for the Down Payment...
Taking everything into consideration... my factor worked out to 7 times gross for a quick and dirty number.... so a unit in my area that rents for $1000 per month would be worth 70k
Larger Properties are priced almost 100% on ROI... Return on Investment and are often treated as any other investment... Stocks, Bonds, Money in the Bank...
Taking everything into consideration... my factor worked out to 7 times gross for a quick and dirty number.... so a unit in my area that rents for $1000 per month would be worth 70k
Larger Properties are priced almost 100% on ROI... Return on Investment and are often treated as any other investment... Stocks, Bonds, Money in the Bank...
The wild card is appreciation or lack thereof...
So you are saying that if you expect 1000$ per month in rent you wouldn't spend more then 70K on a property?
Also are you saying that taxes/maintanence etc.. would cost about 5 out of the 12 months of rent = 5000$, so you take 7000$ x 10 = 70K to gross it up.
So you are saying that if you expect 1000$ per month in rent you wouldn't spend more then 70K on a property?
Also are you saying that taxes/maintanence etc.. would cost about 5 out of the 12 months of rent = 5000$, so you take 7000$ x 10 = 70K to gross it up.
Thanks
Yes... the rental units I've bought in the SF Bay Area penciled out between 6.6 to 8 times the Gross Rent...
I stopped buying rental property around 1999-2000 because the prices could no longer be justified by the income and this is when I started selling... actually exchanging out of residential rentals into commercial.
A good friend has recently started buying homes in Pittsburg CA between 60 and 70k that he is getting $1000 to $1100 a month rent.
Most of the buyers in my area this decade were speculating on price appreciation and were not concerned when rents only covered half the monthly expenses... these properties are now in Foreclosure with the owners simply walking away.
The mindset was, "It's only going to cost more tomorrow... so I better buy now"
I have and do buy property that doesn't cash flow...
One is a home on a very large lot zoned for more units that I intend to develop and another is a home with a very large barn that I use for myself and only rent the home.
If a property doesn't cash flow... the difference has to come out of your pocket each month...
A middle ground approach is to buy a duplex or triplex and live in one of the units... this will let you buy more property because of the added income and you have to live somewhere anyway.
I recommended a friend buy a Duplex that was a 3 bedroom house and a 1 bedroom cottage... he lived in the 1 bedroom and rented the three bedroom with the rent covering his mortgage only... later he moved into the 3 bedroom and rented the 1 bedroom with still covers most of his mortgage because rents have gone up in the time since he bought.
Each deal is different... all I am saying is know how you are going to pay the monthly expenses before you take on the responsibility.
THat is good information, thanks. I was thinking of buying a duplex living in the top floor and renting out the bottom. I live in CT and most duplexes would cost around 300K and would rent out one floor for about 1200. So rent would not cover mortgage, but the cost might be less then if I just bought a condo for 200K and did not rent any of it out.
THat is good information, thanks. I was thinking of buying a duplex living in the top floor and renting out the bottom. I live in CT and most duplexes would cost around 300K and would rent out one floor for about 1200. So rent would not cover mortgage, but the cost might be less then if I just bought a condo for 200K and did not rent any of it out.
Sounds like a plan... in essence, the difference would be the cost of living in your unit.
There are also tax advantage... if the rental is one half the total square footage you should be able to expense half the costs and depreciate half the purchase price allocated to the building...
I posted the same question in the Business forum, but after checking through the posts here I think it should be moved here instead.
I wanted to buy a property to rent out, probably a 2 or 3 story house (probably would cost about 400K). But I wanted to know from someone with experience renting what is the price vs. rent that justifies making a purchase. Because I want to make a good investment.
I mean if you are getting 3000$ in rent, is it still worth it if the mortgage is 3000$. Is there a certain formula or rule of thumb you use?
Thanks!
Throughout the United States, operating expenses run 45% to 50% of the gross rents. That includes basically all the expenses except the mortgage payment (principal and interest only). The operating expenses include taxes, insurance, management (even if you do it yourself), maintenance (even if you do it yourself), vacancies, utilities (even if only during vacancies), advertising, legal fees, entity maintenance, evictions, damage done by tenants (in excess of the security deposit), lawsuits, capital expenses (not technically an operating expense), etc, etc, etc. So if you can lose 1500 a month good luck
In my neck of the woods I stopped buying a couple of years ago now I am buying every house I can get I make 10-15 bids a week my criteria is simple I have to rent for twice my note and yes it can be done at least here it can
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