ibjames –
The rent*12*20 was an assumption that 5% gross rent on a property would yield break even. E.g. Annual rent should be 5% of the property value. The 12 is 12 months. The 20 is 1/0.05
However, this is not really the break even point. It depends on amount down, maintenance and a host of other factors.
A similar rule-of-thumb approach, (assuming interest rates in the 6 to 7% range), is that single-family home property value is 15x the annual rent or less (about 6.7% gross rate). This is the point where, from a primary residence point of view owning versus renting approaches break even with 20% down.
For SFH investment property, I am more conservative and would want more like 12 or 14x annual rent. Because unlike the maintenance of your own home maintenance of rental property is simply an expense. In you own home, maintenance becomes a hobby (especially your first house).
