U.S. CitiesCity-Data Forum Index
Covid-19 Information Page
Go Back   City-Data Forum > General Forums > Economics > Business
 [Register]
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.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 06-30-2009, 05:24 PM
 
1,679 posts, read 2,701,100 times
Reputation: 1292

Advertisements

Hi,

I wanted to ask anyone who has experience buying property and renting, what is the breakeven point where you decide to buy a property to rent.

Does monthly Rent have to be >= the monthly mortgage. Or is there another formula between the rent and the mortgage on the property that you use?

Thanks
Rate this post positively Reply With Quote Quick reply to this message

 
Old 07-01-2009, 06:39 AM
 
Location: Southwest Missouri
1,921 posts, read 5,811,600 times
Reputation: 921
There are a lot of variables that come into play, and they will vary depending on your location. What works in Minneapolis will not necessarily work in Seattle.

Before you get started, you need to have a strategy in mind. Are you investing to get monthly cash flow? Are you banking on future appreciation (either forced or natural)? What's your exit strategy?

Comparing rent to the mortgage price is not nearly detailed enough. You have to take into account vacancy, insurance, maintenance, repairs, taxes, etc. You also have to know the local market to get an idea of how rents are trending and what the vacancy rates are like.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 09:03 AM
 
13,357 posts, read 23,398,173 times
Reputation: 13615
Ball park, your principal and interest payments should be 50% of the rents collected.

For example, if market rent is $2000/month for say a triplex the principal and interest on the mortgage should be limited to $1000.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 09:23 AM
 
28,461 posts, read 75,179,337 times
Reputation: 18519
Default Good luck finding such a situation...

Quote:
Originally Posted by wheelsup View Post
Ball park, your principal and interest payments should be 50% of the rents collected.

For example, if market rent is $2000/month for say a triplex the principal and interest on the mortgage should be limited to $1000.

If you find such a situation JUMP ON IT. Very unlikely. While it is entirely possible to get to a point where an income property has rent that is DOUBLE the principal and interest it is not common for properties to be listed as such.

Much more common is that an older property needing work may barely have cash flow that fits the 50% break. If it is in a desirable area with strong employment trends and no excess of rental properties it MAY be possible to improve the place, raise the rents and improve both equity and cash flow.

That takes TIME, MONEY and HARD WORK as well as more than a little LUCK / cooperation from the BROADER ECONOMY. I have seen many people attempt to do what I have described -- improving a property to increase equity and cash flow, but if things go against them they will NOT end up with positive cash flow. If they over spend on the improvements they will NOT see their equity increase.

If it was easy to do these things there would NOT be so many tales of woe...
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 09:24 AM
 
Location: East Northport
3,348 posts, read 8,759,274 times
Reputation: 1317
I look for a 10% capitalization rate. In other words, take your expected annual rents, deduct annual expenses (not including mortgage payments), and then multiply the result by 10. That is the most that I would pay.

By the way, I prefer multi-family homes over single family. With a single family, it's either fully occupied or fully vacant. With a multi-family, you will always have cashflow, even while you are trying to fill a vacancy.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 09:25 AM
 
Location: Southwest Missouri
1,921 posts, read 5,811,600 times
Reputation: 921
Quote:
Originally Posted by wheelsup View Post
Ball park, your principal and interest payments should be 50% of the rents collected.

For example, if market rent is $2000/month for say a triplex the principal and interest on the mortgage should be limited to $1000.
Where are these deals?? I sure haven't seen them.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 09:35 AM
 
28,461 posts, read 75,179,337 times
Reputation: 18519
Tom:

I agree that multi-family can have some advantages when it comes to cashflow, but that is not the only thing to consider. Multi-family properties are much harder to market as there are far fewer people interested in owning them, similarly the profile of renters for multi-family can be considerably different than single famly housing.

The "time inputs" may be similar, but historically the appreciation of single family, and the flexibility in marketing has been superior. That MAY be changing with the current level of distaste for home ownership that some people have gotten with bad experiences from their foray into highly leveraged home ownership at bubble prices, but I would be shocked if things shifted dramatically over the long term...

At any rate, there are more than enough opportunities for BOTH investors in multi-family and single family income properties to co-exisit for the foreseeable future.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 03:39 PM
 
13,357 posts, read 23,398,173 times
Reputation: 13615
Quote:
Originally Posted by 8 SNAKE View Post
Where are these deals?? I sure haven't seen them.

A buddy of mine has 14 units now with that formula. A couple duplexes, and a 4-plex. In Raleigh, NC. The last one he bought he paid $40k or so I believe. I think the 4-plex was $78k.

They were also bought with no money down.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 04:05 PM
 
Location: Eastern Washington
15,133 posts, read 47,891,567 times
Reputation: 14382
Quote:
Originally Posted by wheelsup View Post
A buddy of mine has 14 units now with that formula. A couple duplexes, and a 4-plex. In Raleigh, NC. The last one he bought he paid $40k or so I believe. I think the 4-plex was $78k.

They were also bought with no money down.

Wow. Good buy on his part.

I can see 2 trains of thought going here - single-family rent houses bought as much for resale as for rental income, and multi-family units that are the reverse.

Something that has not been mentoned is that renters make "bad pets" - they break things you can't imagine breaking yourself, sometimes they are late with rent, other annoyances. You can hire a property manager if you have enough postive income to pay for their services, depending on how "hands-on" you want to be.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 07-01-2009, 04:15 PM
 
Location: Milwaukee
925 posts, read 1,738,920 times
Reputation: 1585
The investment/rental business is a mess due to the housing bubble and the inflated prices people paid for properties. The price of homes was increasing 10+% in most of the country and rent were increasing in the neighborhood of 1 or 2%. Sometimes not even that. Therefore the rent/mortgage equation is out of whack. Home/Investment properties prices are dropping, but it will still be a year or two before buying a rental makes sense. I own a rental property, which I purchased in 1997 near a university. It's worked out for me, but it takes much work. A good owner will stay on top of things such as: repairs, upkeep, upgrades, screening tenants, etc.. If your not willing to do this, do not buy a rental property. It will become a nightmare. You must stay on top of all things, both large and small, if you want to be successful. This is not an easy money type of thing.
Rate this post positively Reply With Quote Quick reply to this message
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.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics > Business
Similar Threads
Follow City-Data.com founder on our Forum or

All times are GMT -6.

© 2005-2020, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Contact Us - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 - Top