Cardiff, yes, there is a rule of thumb to calculate if a rental is a good investment. It’s a 8-13%. The rule of thumb is a Cash on Cash return using a Gross Rent Multiplier. In the current housing market, they’ve been out of whack for years. Even in the normal market, California has tended to the high end (low return).
Basically, the purchase price of the rental should be between 8-13 times the Gross Rents. SFR’s tend to be a little higher (10-15X). However, in the current market SFR’s are tending towards 20-25X due to the speculators thinking they’ll make a year’s worth of appreciation (10-20%) on a million dollar unit and flip it after carrying a 1 year ARM with a 1% teaser.
Literally, I gave up looking last year after seeing unit after unit where the rents wouldn’t cover the mortgage payment on a 1% loan. You check the financing scoop and the owner has had it one year with a 1% loan buying the the previous year and marking it up 10-15%.
