What would you need to rent this for to justify investment 850k

Question

Home Value 850,000

Taxes are 10,000/yr

Insurance is 8,500/yr

Tenant pays water/electric....I realize I should be looking at comps in the area to set the price, i'm just curious on the numbers what landlords would typically want to make their formulas make sense.

1% rule applies to big stuff?

Jeff B. · Answer

In Northern Calif,  an SFR sells even north of 850k - - and can be problematic to avoid red ink.  However, I bought a tract home in Santa Clara county in the '70s for 34k and today it goes for 1mill pus (no joke!).  Don't think that kind of growth CAN continue, but Silicon Valley is a unique market.

https://www.google.com/search?q=Santa+Clara+county&ie=utf-8&oe=utf-8

I invested elsewhere and elected an MFU 5+ for all the reasons noted in this topic.

Bill Florence · Answer

Well for example, if you are financing this at 80%LTV 4.5% 30yr, the mort/tax/insur costs will be around $5000 per month and the landlord should also put a % away for vacancies, repairs, reserves and make money...

Alain Perez-Majul · Answer

I don't know about in Florida, but here in Indy, you can be all-in in a house for 50k that will rent for 700-750. For 850k, that equates to 17 houses, $11,900-$12,750 in rents. I'm assuming you're looking to finance the home you mentioned, but you get the idea. As Russell said, for more expensive properties, you'll almost never get the 1% rule, unless you find a gem fixer-upper that you can get value out of.

Margie Kohlhaas · Answer

I'm in California and our $800k house will rent for $3,500. I choose to invest elsewhere as I would have to wait 30 years to see income return. I prefer getting homes that will pay for themselves within 5 years. The key is finding a cosmetic fixer that can easily be rehabbed and turn a profit in a short amount of time. I would look for an area that has good economic job prospects but a shortage of housing. Save money by investing in the outlying areas as people don't mind commuting 10-20 miles. You can often find a bigger & nicer house if you look a little further out.

Kyle J. · Answer

If you're talking about a single family house, I wouldn't even consider buying it at that price for a rental.  Houses at that price point rarely (if ever) pencil out.  Plus, when it's vacant, that's a lot of money to have to shell out each month.  ($8500/yr just for insurance is over 10x what I pay for my most expensive policy in California, but maybe it's because you're in Florida.)

Now if you were talking about a multi-family for that price, that's a different story.  But it doesn't sound like you are.

Jeff B. · Answer

Work the numbers backwards:

• price should have been 10x the GSI  (the 10x is the GRM: Gross Rent Multiplier)
• so GSI = Price/10

Divide by 12 = Gross Rents per month.

Russell Brazil · Answer

On expensive properties you are never going to get close to the 1% rule.  As a general rule on a single unit property, as the price goes up, the spread between rent and market value becomes greater.  Of properties at this price point close to me, they would probably rent for about $3500.