Question for Investor-Landlords.......... (eviction, renters, appreciation, house)
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Just like your other threads this one is also in the wrong forum. The question is too vague and I find it highly unlikely that any investor would use a price to rent ratio because it completely ignores 50%+ of the costs involved.
Just like your other threads this one is also in the wrong forum. The question is too vague and I find it highly unlikely that any investor would use a price to rent ratio because it completely ignores 50%+ of the costs involved.
Some of those Strike It Rich As An Investor-Landlord seminars and packages throw in these type of items to add some bulk to the material. I don't even think "Price to Rent Ratio" makes any sense at all.
The question is region dependent. Some areas, such as the Midwest, do not have much property appreciation so all the profit is on the cash flow so investors will be looking for low GRMs. Some areas, such as Manhattan or coastal California expect property appreciation so they can tolerate less cash flow because they expect part of their profit as property appreciation. Which, btw can be preferred as you don’t pay taxes on it yearly and when (if) you do it is long term capital gains rate
So, 6 in the midwest is good and it can be 15 or more in coastal California or Manhattan and still make money, in fact significantly more. You won't find any 6's in coastal California or Manhattan, not even close. In coastal CA, 10's are only at the low end (Class D properties)
Generalization like this border on the sort of unscrupulous scams about "how to become a millionaire selling used stuff on ebay".
The fact is when I first decided to rent out a single family house it was because the particular house was a better candidate for generating income through rental than by resale. I had lived in it and moved in when it was in poor condition. I upgraded some of the mechanical systems that made it much less of a maintenance headache, but it did not compare favorably to what buyers were looking for. Eventually the market did shift and I did make a nice profit on the sale of the home; the rental income certainly was enough to cover my carrying costs but it was not going to make me rich.
The thing too is that when a smart investor shops for potential real estate to rent out or flip the key factors are often the QUALITY of neighbor both in terms of current condition AND the likelihood that the neighborhood will fare better than others. That means whether you want longer term income or a quick resale you would be crazy to look at purchase price / potential selling price / potential rent isolated from the factors that make the LOCATION valuable...
Having worked with folks that do things like own rentals in college towns and areas with lots of Section 8 renters it should be no surprise that the challenges in these areas DEMAND a whole different level of scrutiny than renting in more stable areas -- costs for an eviction against a full-blown "nightmare tenant" can eat YEARS of profit compared to the relative ease of renting to somebody with a more respectful attitude.
Definitely under 10. I would stick with a rent multiplier of six times the rent if you want to make any money. Most of mine were sub-six.
If you buy a $150,000 house, you expect monthly rent of $2,083?
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