So how much of a gain is he looking for?? Our peak was 2x or greater of what it was. If he is going to hold for 5 years, appreciation rates look as the following.
14.9%/year = back to bubblicious in 5 years (2x)
11.8%/year = 75% increase over purchase price.
08.4%/year = 50% increase over purchase price.
04.6%/yesr = 25% increase over purchase price.
These ignore carrying costs. I suspect they are using their own cash w/o using bank funding. This allows them to at least earn the ‘interest’ that would have been paid to the lender. This is the only way it has a chance of working out right now. Assume 6% effective lending rate adds 6% to each of the above as return. (again ignoring carry costs and assume that the rentor can cover the full monthly mortgage requirement.)
If you have a 6% mortgage but renting carries only 66% of monthly mortgage nut, you have to take away 2% from above yields – this is why it might work if they are using cash financing but not if they finance it.
