Price/Rent Ratios

[sd_t2]

>>
>> I think I’d need to see an example of a $325,000 condo that >> would rent for $2,100.

I’m thinking more apartments. Here’s a sampling, there are plenty of others.

http://www.equityapartments.com/market/brochure.aspx?page=overview&PropID=522

http://www.portofinoapthomes.com/

“You’ll find one bedroom apartments for rent from $1499, two bedroom apartments for rent from $1899 and three bedroom apartments for rent from $2599.”

http://www.eveningcreek.info/

“You’ll find two bedroom apartments for rent from $2040.”

[HLS]

I guess in the condo market, at least, say a $325,000 condo at 6% 30yr fixed. Even assuming no money down for the sake of argument, this pencils out to:
**************************************
Unfair comparison. Scenario isn’t accurate. The LTV is key.
Any loan above 80% is going to have MI added, making the effective rate much higher than 6%, probably higher than 7% (Add $200+ mo)
You are also going to pay a higher rate above 90.01%-95% LTV, and even higher at 95.01%-100%.

With 20% down, ($65,000) THEN you can get a loan for 6%, IF you qualify. Payment will be $1559 + $271 (Lost interest on the $65K)= $1830..+ 550 above= $2380

If you don’t have $65,000 down, credit above 680, reserves beyond the 65K, and stable income you may not qualify anyway for that rate.
If you do qualify, you will need at least $5,000 mo. income to qualify, assuming that you have no other monthly debts.

A lender will still qualify you for a loan that is a higher % of income than is wise.

Whether it’s home or condo, you will have extra costs for maintenance, and condos can become a worse investment.

[HLS]

I guess in the condo market, at least, say a $325,000 condo at 6% 30yr fixed. Even assuming no money down for the sake of argument, this pencils out to:
**************************************
Unfair comparison. Scenario isn’t accurate. The LTV is key.
Any loan above 80% is going to have MI added, making the effective rate much higher than 6%, probably higher than 7% (Add $200+ mo)
You are also going to pay a higher rate above 90.01%-95% LTV, and even higher at 95.01%-100%.

With 20% down, ($65,000) THEN you can get a loan for 6%, IF you qualify. Payment will be $1559 + $271 (Lost interest on the $65K)= $1830..+ 550 above= $2380

If you don’t have $65,000 down, credit above 680, reserves beyond the 65K, and stable income you may not qualify anyway for that rate.
If you do qualify, you will need at least $5,000 mo. income to qualify, assuming that you have no other monthly debts.

A lender will still qualify you for a loan that is a higher % of income than is wise.

Whether it’s home or condo, you will have extra costs for maintenance, and condos can become a worse investment.

[HLS]

I guess in the condo market, at least, say a $325,000 condo at 6% 30yr fixed. Even assuming no money down for the sake of argument, this pencils out to:
**************************************
Unfair comparison. Scenario isn’t accurate. The LTV is key.
Any loan above 80% is going to have MI added, making the effective rate much higher than 6%, probably higher than 7% (Add $200+ mo)
You are also going to pay a higher rate above 90.01%-95% LTV, and even higher at 95.01%-100%.

With 20% down, ($65,000) THEN you can get a loan for 6%, IF you qualify. Payment will be $1559 + $271 (Lost interest on the $65K)= $1830..+ 550 above= $2380

If you don’t have $65,000 down, credit above 680, reserves beyond the 65K, and stable income you may not qualify anyway for that rate.
If you do qualify, you will need at least $5,000 mo. income to qualify, assuming that you have no other monthly debts.

A lender will still qualify you for a loan that is a higher % of income than is wise.

Whether it’s home or condo, you will have extra costs for maintenance, and condos can become a worse investment.

[HLS]

I guess in the condo market, at least, say a $325,000 condo at 6% 30yr fixed. Even assuming no money down for the sake of argument, this pencils out to:
**************************************
Unfair comparison. Scenario isn’t accurate. The LTV is key.
Any loan above 80% is going to have MI added, making the effective rate much higher than 6%, probably higher than 7% (Add $200+ mo)
You are also going to pay a higher rate above 90.01%-95% LTV, and even higher at 95.01%-100%.

With 20% down, ($65,000) THEN you can get a loan for 6%, IF you qualify. Payment will be $1559 + $271 (Lost interest on the $65K)= $1830..+ 550 above= $2380

If you don’t have $65,000 down, credit above 680, reserves beyond the 65K, and stable income you may not qualify anyway for that rate.
If you do qualify, you will need at least $5,000 mo. income to qualify, assuming that you have no other monthly debts.

A lender will still qualify you for a loan that is a higher % of income than is wise.

Whether it’s home or condo, you will have extra costs for maintenance, and condos can become a worse investment.

[HLS]

I guess in the condo market, at least, say a $325,000 condo at 6% 30yr fixed. Even assuming no money down for the sake of argument, this pencils out to:
**************************************
Unfair comparison. Scenario isn’t accurate. The LTV is key.
Any loan above 80% is going to have MI added, making the effective rate much higher than 6%, probably higher than 7% (Add $200+ mo)
You are also going to pay a higher rate above 90.01%-95% LTV, and even higher at 95.01%-100%.

With 20% down, ($65,000) THEN you can get a loan for 6%, IF you qualify. Payment will be $1559 + $271 (Lost interest on the $65K)= $1830..+ 550 above= $2380

If you don’t have $65,000 down, credit above 680, reserves beyond the 65K, and stable income you may not qualify anyway for that rate.
If you do qualify, you will need at least $5,000 mo. income to qualify, assuming that you have no other monthly debts.

A lender will still qualify you for a loan that is a higher % of income than is wise.

Whether it’s home or condo, you will have extra costs for maintenance, and condos can become a worse investment.

[Bugs]

The newer 2bd/2ba condos in that size range in Mission Valley are currently selling between $425,000 – $465,000. Sooo, take another 25% off those prices and we’ll be getting near parity. FYI, it will take an $84,000 annual household income to qualify for that 2bd condo at $325,000. Such a deal.

Of course, this comparison is based on assumptions that there will such a thing as 100% financing program AND 6% interest rates available by the time these prices get there. Personally, I wouldn’t bet on either of those assumptions.

[Bugs]

The newer 2bd/2ba condos in that size range in Mission Valley are currently selling between $425,000 – $465,000. Sooo, take another 25% off those prices and we’ll be getting near parity. FYI, it will take an $84,000 annual household income to qualify for that 2bd condo at $325,000. Such a deal.

Of course, this comparison is based on assumptions that there will such a thing as 100% financing program AND 6% interest rates available by the time these prices get there. Personally, I wouldn’t bet on either of those assumptions.

[Bugs]

The newer 2bd/2ba condos in that size range in Mission Valley are currently selling between $425,000 – $465,000. Sooo, take another 25% off those prices and we’ll be getting near parity. FYI, it will take an $84,000 annual household income to qualify for that 2bd condo at $325,000. Such a deal.

Of course, this comparison is based on assumptions that there will such a thing as 100% financing program AND 6% interest rates available by the time these prices get there. Personally, I wouldn’t bet on either of those assumptions.

[Bugs]

The newer 2bd/2ba condos in that size range in Mission Valley are currently selling between $425,000 – $465,000. Sooo, take another 25% off those prices and we’ll be getting near parity. FYI, it will take an $84,000 annual household income to qualify for that 2bd condo at $325,000. Such a deal.

Of course, this comparison is based on assumptions that there will such a thing as 100% financing program AND 6% interest rates available by the time these prices get there. Personally, I wouldn’t bet on either of those assumptions.

[Bugs]

The newer 2bd/2ba condos in that size range in Mission Valley are currently selling between $425,000 – $465,000. Sooo, take another 25% off those prices and we’ll be getting near parity. FYI, it will take an $84,000 annual household income to qualify for that 2bd condo at $325,000. Such a deal.

Of course, this comparison is based on assumptions that there will such a thing as 100% financing program AND 6% interest rates available by the time these prices get there. Personally, I wouldn’t bet on either of those assumptions.

[blahblahblah]

You also forgot the opportunity cost of your down payment. If it’s 20% of 325K, that’s 65K which would get you 3250/yr at 5%. Of course you’ll pay tax on that, let’s say 27% leaving you 2372/yr income on your money, just under $200/mo for keeping your money safe in a money market account. So your $1800/mo rent (probably realistic rent for a $325K condo) is really only $1600/mo.

There is no way that a $325K condo rents for $2100/mo. Maybe people are TRYING to rent them for that, but it would be rare for them to get that. I rent a nice place that would sell for at least $750K for less than $2500/mo.

[blahblahblah]

You also forgot the opportunity cost of your down payment. If it’s 20% of 325K, that’s 65K which would get you 3250/yr at 5%. Of course you’ll pay tax on that, let’s say 27% leaving you 2372/yr income on your money, just under $200/mo for keeping your money safe in a money market account. So your $1800/mo rent (probably realistic rent for a $325K condo) is really only $1600/mo.

There is no way that a $325K condo rents for $2100/mo. Maybe people are TRYING to rent them for that, but it would be rare for them to get that. I rent a nice place that would sell for at least $750K for less than $2500/mo.

[blahblahblah]

You also forgot the opportunity cost of your down payment. If it’s 20% of 325K, that’s 65K which would get you 3250/yr at 5%. Of course you’ll pay tax on that, let’s say 27% leaving you 2372/yr income on your money, just under $200/mo for keeping your money safe in a money market account. So your $1800/mo rent (probably realistic rent for a $325K condo) is really only $1600/mo.

There is no way that a $325K condo rents for $2100/mo. Maybe people are TRYING to rent them for that, but it would be rare for them to get that. I rent a nice place that would sell for at least $750K for less than $2500/mo.

[blahblahblah]

You also forgot the opportunity cost of your down payment. If it’s 20% of 325K, that’s 65K which would get you 3250/yr at 5%. Of course you’ll pay tax on that, let’s say 27% leaving you 2372/yr income on your money, just under $200/mo for keeping your money safe in a money market account. So your $1800/mo rent (probably realistic rent for a $325K condo) is really only $1600/mo.

There is no way that a $325K condo rents for $2100/mo. Maybe people are TRYING to rent them for that, but it would be rare for them to get that. I rent a nice place that would sell for at least $750K for less than $2500/mo.

[Author]

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