While 4% is what the market seems to be asking, isn’t that a losing propostion in a flat or declining market? At least for new investors it must be a deterrent.
You are absolutely correct. Now that appreciation is out the window there are no investors buying for cash flow because they can get more on their investment in an ING account or a CD.
As for a “standard calculation” for determining whether the renter is ahead on the deal, that number changes with time, depending on interest rates, rents, and potential for appreciation.
If you are talking about rent vs buy, then you would need to compute the PITI (principal, interest Tax and Insurance) payment and comapre it to monthly rent after taxes, as well as account for any opportunity costs for tying up a downpayment. By this calculation a number in the 7-8% range or so in today’s environment is probably reasonable.
From an investor standpoint, if I could get 8% return on a property today, I would probably buy it, because that means it’s about 40% cheaper (in terms of return on investment) than most property in San Diego. This is in-line with the range described above.
