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(former)FormerSanDiegan
Participant[quote=peterb]As sticky as rents can be, if this economy continues to contract at its present rate, there will be increased vacancies and downward pressure on rents. [/quote]
If the economy continues to contract at its present rate, our GDP will go to zero by 2025.
Participant[quote=SDEngineer]
I think the historical average for San Diego is somewhere around 150-160
[/quote]In the last cycle, Clairemont bottomed at a ratio of about 150x in 1995-1996, so I doubt any long-term average gets that low.
(150K house, 1000 monthly rent)As for the ability to cash flow with reasonable down payments (e.g. 25%) at a specific level of this ratio, it depends directly on interest rates (as SDEngineer pointed out above). So there is no set number that makes sense in all interest rate environments.
Believing that there is or should be a fundamental number for this metric would be to ignore one of the largest expenses (at least in the initial years) in real estate investment (The mortgage payment).At the 8 % rates we saw in the mid 1990s one couldn’t really cash flow with the ratio at 150x.
With rates at 5% or so you COULD have positive cash flow with 20-25% down and a ratio of 150x.
Participant[quote=SDEngineer]
I think the historical average for San Diego is somewhere around 150-160
[/quote]In the last cycle, Clairemont bottomed at a ratio of about 150x in 1995-1996, so I doubt any long-term average gets that low.
(150K house, 1000 monthly rent)As for the ability to cash flow with reasonable down payments (e.g. 25%) at a specific level of this ratio, it depends directly on interest rates (as SDEngineer pointed out above). So there is no set number that makes sense in all interest rate environments.
Believing that there is or should be a fundamental number for this metric would be to ignore one of the largest expenses (at least in the initial years) in real estate investment (The mortgage payment).At the 8 % rates we saw in the mid 1990s one couldn’t really cash flow with the ratio at 150x.
With rates at 5% or so you COULD have positive cash flow with 20-25% down and a ratio of 150x.
Participant[quote=SDEngineer]
I think the historical average for San Diego is somewhere around 150-160
[/quote]In the last cycle, Clairemont bottomed at a ratio of about 150x in 1995-1996, so I doubt any long-term average gets that low.
(150K house, 1000 monthly rent)As for the ability to cash flow with reasonable down payments (e.g. 25%) at a specific level of this ratio, it depends directly on interest rates (as SDEngineer pointed out above). So there is no set number that makes sense in all interest rate environments.
Believing that there is or should be a fundamental number for this metric would be to ignore one of the largest expenses (at least in the initial years) in real estate investment (The mortgage payment).At the 8 % rates we saw in the mid 1990s one couldn’t really cash flow with the ratio at 150x.
With rates at 5% or so you COULD have positive cash flow with 20-25% down and a ratio of 150x.
Participant[quote=SDEngineer]
I think the historical average for San Diego is somewhere around 150-160
[/quote]In the last cycle, Clairemont bottomed at a ratio of about 150x in 1995-1996, so I doubt any long-term average gets that low.
(150K house, 1000 monthly rent)As for the ability to cash flow with reasonable down payments (e.g. 25%) at a specific level of this ratio, it depends directly on interest rates (as SDEngineer pointed out above). So there is no set number that makes sense in all interest rate environments.
Believing that there is or should be a fundamental number for this metric would be to ignore one of the largest expenses (at least in the initial years) in real estate investment (The mortgage payment).At the 8 % rates we saw in the mid 1990s one couldn’t really cash flow with the ratio at 150x.
With rates at 5% or so you COULD have positive cash flow with 20-25% down and a ratio of 150x.
Participant[quote=SDEngineer]
I think the historical average for San Diego is somewhere around 150-160
[/quote]In the last cycle, Clairemont bottomed at a ratio of about 150x in 1995-1996, so I doubt any long-term average gets that low.
(150K house, 1000 monthly rent)As for the ability to cash flow with reasonable down payments (e.g. 25%) at a specific level of this ratio, it depends directly on interest rates (as SDEngineer pointed out above). So there is no set number that makes sense in all interest rate environments.
Believing that there is or should be a fundamental number for this metric would be to ignore one of the largest expenses (at least in the initial years) in real estate investment (The mortgage payment).At the 8 % rates we saw in the mid 1990s one couldn’t really cash flow with the ratio at 150x.
With rates at 5% or so you COULD have positive cash flow with 20-25% down and a ratio of 150x.
ParticipantP.S. – I assumed you would buy the rental in a part of town where prices have had more of a decline than the coastal communities.
ParticipantP.S. – I assumed you would buy the rental in a part of town where prices have had more of a decline than the coastal communities.
ParticipantP.S. – I assumed you would buy the rental in a part of town where prices have had more of a decline than the coastal communities.
ParticipantP.S. – I assumed you would buy the rental in a part of town where prices have had more of a decline than the coastal communities.
ParticipantP.S. – I assumed you would buy the rental in a part of town where prices have had more of a decline than the coastal communities.
ParticipantGenerally a good strategy. Buying a house now as owner occupied will get you better terms than you can ever get buy buying a rental after buying an owner occ.
Also, if you buy the first house as a primary now and convert to a rental in a couple years you can take advantage of the tax credits for 1st time buyers currently available.
Also, if you are focused on a property that makes sense as a rental, you will buy smarter, with less downside, since you will insist on break even or positive cash flow. You will likely be more conservative than most people would when buying a personal residence.
The downside when you buy your personal residence is that lenders typically count 75% of the rental property income when figuring DTI levels. Again, this will reduce the amount you can pay for your personal residence. There is a silver lining in this, it keeps you from stretching too far on the primary.
As for the cash. It makes sense to put 20% down to get the best rates on the first house.
ParticipantGenerally a good strategy. Buying a house now as owner occupied will get you better terms than you can ever get buy buying a rental after buying an owner occ.
Also, if you buy the first house as a primary now and convert to a rental in a couple years you can take advantage of the tax credits for 1st time buyers currently available.
Also, if you are focused on a property that makes sense as a rental, you will buy smarter, with less downside, since you will insist on break even or positive cash flow. You will likely be more conservative than most people would when buying a personal residence.
The downside when you buy your personal residence is that lenders typically count 75% of the rental property income when figuring DTI levels. Again, this will reduce the amount you can pay for your personal residence. There is a silver lining in this, it keeps you from stretching too far on the primary.
As for the cash. It makes sense to put 20% down to get the best rates on the first house.
ParticipantGenerally a good strategy. Buying a house now as owner occupied will get you better terms than you can ever get buy buying a rental after buying an owner occ.
Also, if you buy the first house as a primary now and convert to a rental in a couple years you can take advantage of the tax credits for 1st time buyers currently available.
Also, if you are focused on a property that makes sense as a rental, you will buy smarter, with less downside, since you will insist on break even or positive cash flow. You will likely be more conservative than most people would when buying a personal residence.
The downside when you buy your personal residence is that lenders typically count 75% of the rental property income when figuring DTI levels. Again, this will reduce the amount you can pay for your personal residence. There is a silver lining in this, it keeps you from stretching too far on the primary.
As for the cash. It makes sense to put 20% down to get the best rates on the first house.
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