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SDEngineer
Participant[quote=SandraL]Excellent! Thank you.
Last question, average rent is figured by average rent on a HOUSE of the similar bed/bad configuration or APARTMENT?
I assume house, but you know what they say about assuming…. [/quote]
You are correct – compare apples to apples. If you have a 3/2 condo with a carport and a patio, it will command less rent than a 3/2 house with a 2 car garage and a yard. Location also plays into it, of course.
The idea situation is to compare a model match (same floorplan, same area), but, of course, especially on houses, that will be difficult to do a lot of the time.
SDEngineer
Participant[quote=SandraL]Excellent! Thank you.
Last question, average rent is figured by average rent on a HOUSE of the similar bed/bad configuration or APARTMENT?
I assume house, but you know what they say about assuming…. [/quote]
You are correct – compare apples to apples. If you have a 3/2 condo with a carport and a patio, it will command less rent than a 3/2 house with a 2 car garage and a yard. Location also plays into it, of course.
The idea situation is to compare a model match (same floorplan, same area), but, of course, especially on houses, that will be difficult to do a lot of the time.
SDEngineer
Participant[quote=SandraL]Excellent! Thank you.
Last question, average rent is figured by average rent on a HOUSE of the similar bed/bad configuration or APARTMENT?
I assume house, but you know what they say about assuming…. [/quote]
You are correct – compare apples to apples. If you have a 3/2 condo with a carport and a patio, it will command less rent than a 3/2 house with a 2 car garage and a yard. Location also plays into it, of course.
The idea situation is to compare a model match (same floorplan, same area), but, of course, especially on houses, that will be difficult to do a lot of the time.
SDEngineer
Participant[quote=SandraL]Excellent! Thank you.
Last question, average rent is figured by average rent on a HOUSE of the similar bed/bad configuration or APARTMENT?
I assume house, but you know what they say about assuming…. [/quote]
You are correct – compare apples to apples. If you have a 3/2 condo with a carport and a patio, it will command less rent than a 3/2 house with a 2 car garage and a yard. Location also plays into it, of course.
The idea situation is to compare a model match (same floorplan, same area), but, of course, especially on houses, that will be difficult to do a lot of the time.
SDEngineer
Participant[quote=SandraL]Excellent! Thank you.
Last question, average rent is figured by average rent on a HOUSE of the similar bed/bad configuration or APARTMENT?
I assume house, but you know what they say about assuming…. [/quote]
You are correct – compare apples to apples. If you have a 3/2 condo with a carport and a patio, it will command less rent than a 3/2 house with a 2 car garage and a yard. Location also plays into it, of course.
The idea situation is to compare a model match (same floorplan, same area), but, of course, especially on houses, that will be difficult to do a lot of the time.
SDEngineer
Participant[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
Participant[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
Participant[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
Participant[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
Participant[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
Participant[quote=knumb]
Real estate investing only makes good sense in an appreciating market, IMO. Otherwise the rent you get is not going to cover the cost of capital, the maintenance, and taxes. It’s sure not going to cover the hassle of dealing with renters.
[/quote]
This hasn’t been true in the past, and I don’t see any reason why it is true now.
When bubbles burst, they overshoot to the downside – there’s a window during this period when it is generally possible to find a property – especially at the low end – which will cash flow immediately as a rental.
Interestingly, in the ’96-’98 timeframe we saw lots of real estate investor activity (the buy-and-hold re investors, not the flippers of the bubble peak). This activity started well before it was apparent the bottom was in and appreciation had started up again.
SDEngineer
Participant[quote=knumb]
Real estate investing only makes good sense in an appreciating market, IMO. Otherwise the rent you get is not going to cover the cost of capital, the maintenance, and taxes. It’s sure not going to cover the hassle of dealing with renters.
[/quote]
This hasn’t been true in the past, and I don’t see any reason why it is true now.
When bubbles burst, they overshoot to the downside – there’s a window during this period when it is generally possible to find a property – especially at the low end – which will cash flow immediately as a rental.
Interestingly, in the ’96-’98 timeframe we saw lots of real estate investor activity (the buy-and-hold re investors, not the flippers of the bubble peak). This activity started well before it was apparent the bottom was in and appreciation had started up again.
SDEngineer
Participant[quote=knumb]
Real estate investing only makes good sense in an appreciating market, IMO. Otherwise the rent you get is not going to cover the cost of capital, the maintenance, and taxes. It’s sure not going to cover the hassle of dealing with renters.
[/quote]
This hasn’t been true in the past, and I don’t see any reason why it is true now.
When bubbles burst, they overshoot to the downside – there’s a window during this period when it is generally possible to find a property – especially at the low end – which will cash flow immediately as a rental.
Interestingly, in the ’96-’98 timeframe we saw lots of real estate investor activity (the buy-and-hold re investors, not the flippers of the bubble peak). This activity started well before it was apparent the bottom was in and appreciation had started up again.
SDEngineer
Participant[quote=knumb]
Real estate investing only makes good sense in an appreciating market, IMO. Otherwise the rent you get is not going to cover the cost of capital, the maintenance, and taxes. It’s sure not going to cover the hassle of dealing with renters.
[/quote]
This hasn’t been true in the past, and I don’t see any reason why it is true now.
When bubbles burst, they overshoot to the downside – there’s a window during this period when it is generally possible to find a property – especially at the low end – which will cash flow immediately as a rental.
Interestingly, in the ’96-’98 timeframe we saw lots of real estate investor activity (the buy-and-hold re investors, not the flippers of the bubble peak). This activity started well before it was apparent the bottom was in and appreciation had started up again.
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