What’s an acceptable price-rent ratio in San Diego?

[Daniel]

200 is the upper range of acceptable, in my opinion. This depends, of course, on interest rates. When interest rates were higher, the ratio used to be lower (150 or so). But, speaking for myself, today I would be a buyer at around the 200 mark. It wouldn’t be a screaming deal, mind you, but it would be “acceptable”.

Nowadays the low-end areas are way below 200, while the higher end still levitates at 250 or so (like in your example).

[SandraL]

So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____

[SandraL]

So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____

[SandraL]

So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____

[SandraL]

So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____

[SandraL]

So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____

[SDEngineer]

[quote=SandraL]So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____[/quote]

Yes, your math is correct. As another poster pointed out, sub 100 is when you get into very profitable investment territory (especially now with rates as low as they are). Rates do throw off this calculation some, as a lower rate means an investor can realize cash flow at a higher price than with a higher interest rate.

I think the historical average for San Diego is somewhere around 150-160.

My breakdown would be (using current rates)

1) Fantasy investors dream – < 80 2) Ideal (cash flow investment) - 80-120 3) Break even investment - 120-140 4) Rent neutral - 140-180 5) Overpriced - 180-220 6) WTF Bubble territory 220+ The difference between break even and rent neutral is the difference between an investor and a homeowner. A homeowner would be rent neutral at a higher price than the investor, since the homeowner has to pay rent every month. An investor has to allow a certain percentage of "downtime" for the unit, and cannot count on rent every month on a unit.

[SDEngineer]

[quote=SandraL]So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____[/quote]

Yes, your math is correct. As another poster pointed out, sub 100 is when you get into very profitable investment territory (especially now with rates as low as they are). Rates do throw off this calculation some, as a lower rate means an investor can realize cash flow at a higher price than with a higher interest rate.

I think the historical average for San Diego is somewhere around 150-160.

My breakdown would be (using current rates)

1) Fantasy investors dream – < 80 2) Ideal (cash flow investment) - 80-120 3) Break even investment - 120-140 4) Rent neutral - 140-180 5) Overpriced - 180-220 6) WTF Bubble territory 220+ The difference between break even and rent neutral is the difference between an investor and a homeowner. A homeowner would be rent neutral at a higher price than the investor, since the homeowner has to pay rent every month. An investor has to allow a certain percentage of "downtime" for the unit, and cannot count on rent every month on a unit.

[SDEngineer]

[quote=SandraL]So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____[/quote]

Yes, your math is correct. As another poster pointed out, sub 100 is when you get into very profitable investment territory (especially now with rates as low as they are). Rates do throw off this calculation some, as a lower rate means an investor can realize cash flow at a higher price than with a higher interest rate.

I think the historical average for San Diego is somewhere around 150-160.

My breakdown would be (using current rates)

1) Fantasy investors dream – < 80 2) Ideal (cash flow investment) - 80-120 3) Break even investment - 120-140 4) Rent neutral - 140-180 5) Overpriced - 180-220 6) WTF Bubble territory 220+ The difference between break even and rent neutral is the difference between an investor and a homeowner. A homeowner would be rent neutral at a higher price than the investor, since the homeowner has to pay rent every month. An investor has to allow a certain percentage of "downtime" for the unit, and cannot count on rent every month on a unit.

[SDEngineer]

[quote=SandraL]So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____[/quote]

Yes, your math is correct. As another poster pointed out, sub 100 is when you get into very profitable investment territory (especially now with rates as low as they are). Rates do throw off this calculation some, as a lower rate means an investor can realize cash flow at a higher price than with a higher interest rate.

I think the historical average for San Diego is somewhere around 150-160.

My breakdown would be (using current rates)

1) Fantasy investors dream – < 80 2) Ideal (cash flow investment) - 80-120 3) Break even investment - 120-140 4) Rent neutral - 140-180 5) Overpriced - 180-220 6) WTF Bubble territory 220+ The difference between break even and rent neutral is the difference between an investor and a homeowner. A homeowner would be rent neutral at a higher price than the investor, since the homeowner has to pay rent every month. An investor has to allow a certain percentage of "downtime" for the unit, and cannot count on rent every month on a unit.

[SDEngineer]

[quote=SandraL]So, in theory….a $200,000 purchase price in an area where average rent is $1200 monthly results in ratio of 166?

What would you define the ranges of ratios

1) Fantasyland ____ to _____
2) Ideal _____ to _____
3) Profitable but less than ideal ___ to ___
4) Breaking even ____ to ____
5) Hello foreclosure ____ to _____[/quote]

Yes, your math is correct. As another poster pointed out, sub 100 is when you get into very profitable investment territory (especially now with rates as low as they are). Rates do throw off this calculation some, as a lower rate means an investor can realize cash flow at a higher price than with a higher interest rate.

I think the historical average for San Diego is somewhere around 150-160.

My breakdown would be (using current rates)

1) Fantasy investors dream – < 80 2) Ideal (cash flow investment) - 80-120 3) Break even investment - 120-140 4) Rent neutral - 140-180 5) Overpriced - 180-220 6) WTF Bubble territory 220+ The difference between break even and rent neutral is the difference between an investor and a homeowner. A homeowner would be rent neutral at a higher price than the investor, since the homeowner has to pay rent every month. An investor has to allow a certain percentage of "downtime" for the unit, and cannot count on rent every month on a unit.

[Daniel]

Is your question directed to me? Well, I’m not sure I could come up with a straight answer, but let me deflect it a bit by saying that the house price/rent ratio is a lot like the stock P/E ratio (with certain exceptions and caveats, of course). You only need to divide it by 12 (to consider yearly instead of monthly rent), and presto! you get something that looks a lot more familiar.

[Daniel]

Is your question directed to me? Well, I’m not sure I could come up with a straight answer, but let me deflect it a bit by saying that the house price/rent ratio is a lot like the stock P/E ratio (with certain exceptions and caveats, of course). You only need to divide it by 12 (to consider yearly instead of monthly rent), and presto! you get something that looks a lot more familiar.

[Daniel]

Is your question directed to me? Well, I’m not sure I could come up with a straight answer, but let me deflect it a bit by saying that the house price/rent ratio is a lot like the stock P/E ratio (with certain exceptions and caveats, of course). You only need to divide it by 12 (to consider yearly instead of monthly rent), and presto! you get something that looks a lot more familiar.

[Daniel]

Is your question directed to me? Well, I’m not sure I could come up with a straight answer, but let me deflect it a bit by saying that the house price/rent ratio is a lot like the stock P/E ratio (with certain exceptions and caveats, of course). You only need to divide it by 12 (to consider yearly instead of monthly rent), and presto! you get something that looks a lot more familiar.

[Author]

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