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0 pointspooper3y ago0 comments

A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up.

I am curious what you guys think of this statement. I think the idea is if the potential rent you get out of your investment is too much under one percent, you might be better off investing in something else?

Now imagine a smallish 4 bed, 2 bath, 1,638 sqft built home on a 5,861 sqft lot in Longmont, Colorado (so not exactly a city but my preference because municipal fiber) that has a sticker price of USD 499,900. I can't imagine paying USD 4,999 every month in rent for this house at the moment. What gives? Is rent too low? My instinct is home prices are way too high but it can't just be "dumb money" keeping prices high, right? Eventually, there should be more supply causing prices to drop? Is something preventing this correction? If so, how do we fix it?

0 comments

lmt553y ago

An old rule of thumb was 'buy at 10, sell at 20'. That's the ratio of price to annual rent. So if you could get 0.86% of the house price in monthly rent, it was a big bargain. If you couldn't get more than 0.43%, then it wasn't worth owning.

The rule of thumb is now obsolete, and 30-40 times rent is perfectly common in lots of places.

The newsletter is quite a lot more aggressive than even the rule of thumb from the 'good old days' when interest rates were much higher.

I used to pay around 0.2% of the market price of my apartment per month. The landlord was a professional property management company, and this situation persisted through several new contracts.

bombcar3y ago

House prices are kind of attached to rent, but not entirely - especially in areas where there are few rentals, or lots of them.

Actual rental revenue received can be significantly lower than calculated if there are vacancies, etc. It’s much easier to do on an apartment building with many units.

ddorian433y ago

> A real estate investment newsletter suggests that for a successful real estate investment, as a rule of thumb you should be able to charge almost one percent of the cost of the house as rent because a rational investor shouldn't count on the value of the house going up.

Does this have all taxes(property,rent,etc) included in the cost?

pooperOP3y ago

As far as I remember, no. This is just the sticker price. This is a conservative estimate for people who are not real estate professionals, probably looking to buy a house to rent for the first time. Based on the other comment reply, it sounds very conservative to dissuade people from making stupid decisions.

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