Rough rule of thumb? - Posted by Douglas McDowell

Posted by eric-fl on June 01, 2001 at 16:15:56:

Normally, as long as interest rates are around or below 10%, then yes, 1% of purchase price will cover PITI, on a single-family house. However, when you say “break even”, you are not accounting for maintenance. This is normally low, or null, on SFH if you buy right and screen right, but you should not discount it.

You cannot use this rule on multi-family properties, those must have value determined via the “income approach” to valuation, since the value of these properties is a function of their cash flow, which in turn is a function of their income minus their expenses and debt service.

Rough rule of thumb? - Posted by Douglas McDowell

Posted by Douglas McDowell on June 01, 2001 at 15:48:43:

I recently read something in one of the posts here and I wondered if this was generally a rough rule of thumb for 100% financed deals.

Please forgive my very rough paraphrase:
A 100% financed deal will not make it’s money through appreciation. In order to break even, it must justify a rent of 1 percent of purchase price/month. So for example a 36,000 purchase must bring in 360/month rent. I realize this is a generalization that doesn’t take into account interest rate, etc…but is this a good quick rule when browsing the paper, looking at homes, etc?

Re: Rough rule of thumb? - Posted by Douglas McDowell

Posted by Douglas McDowell on June 04, 2001 at 11:23:42:

Thanks to you both for the input!

Rough rules of thumb will get you creamed . . . - Posted by JoeKaiser

Posted by JoeKaiser on June 01, 2001 at 23:58:25:

No, there is no such formula that would apply here. Investing requires a little more effort on the part of the investor in order to come up with real numbers that actually do apply.

What a house will rent for has little bearing on the value of the house, and what a house is worth has little bearing on what it will rent for. There is a relationship, of course, but that relationship will vary greatly from house to house, so trying to apply a “rule of thumb” is impossible.

Joe

Rough rules of thumb will get you creamed . . . - Posted by JoeKaiser

Posted by JoeKaiser on June 01, 2001 at 23:48:35:

No, there is no such formula that would apply here. Investing requires a little more effort on the part of the investor in order to come up with real numbers that actually do apply.

What a house will rent for has little bearing on the value of the house, and what a house is worth has little bearing on what it will rent for. There is a relationship, of course, but that relationship will vary greatly from house to house, so trying to apply a “rule of thumb” is impossible.

Joe