First off, 6% isn’t today’s rate, secondly with all properties there are variances in taxes, mello roos, hoa, etc. Esmith points out medians are running about 190x rent, which is not a wise investment. Use the 100-150x rent multiplier as the “range.” Adjust within tha range after factoring the taxes, hoa, age of the property, vacancy rate and projected vacancy. This is what you should use evaluate as a rental property. To purchase, similar parameters can be used because investors will compete with you at those levels. Personally I think you should shoot for 2001 pricing as the ultimate goal for protection with 2003 as a worst case scenario. Keep in mind that r/e investors are few and far between right now, lenders are tightening so that buyers of investment properties have to qualify without counting rent as income as defense againt preforeclure downsizers.
A $1400 rental is still at the high end of the scale at 200k, keep in mind, investors can use pure math, they can invest anywhere in the country, seeking the best mathematical scenario, they don’t need to live there or go to the schools or commute, it’s far less personal for them and mom and pop investors are drying up.
I can buy a $1400/mo rental right now for $165k, not in RB, so why would I pay 200k for the same return, sub 125x rent multiplier can be found elsewhere, therefore, rb is still overpriced at 200k, 150-175 will come and it will be very compelling at those numbers.
