What is the proper rent to home value ratio?

Question

How much rent is ideal rent to property value ratio for both Multi and Single Value

Thanks

Max T. · Answer

@Darius Ogloza

10 years ago it was the 2% rule.

Maybe in 2030 it will be 1/2

Darius Ogloza · Answer

The rent amount should at a minimum cover your recurring monthly costs, allow for a cash reserve for non-recurring capital expenditures and repair/vacancy-related costs and ideally put some cash into your pocket. Ideal rent to cost ratio? 10,000,000 to 1 (because you asked).

Darius Ogloza · Answer

People on this site tout the 1% "rule" which is monthly rent should equal 1% of purchase price. Whether this "rule" is observed or not in your area depends on local market factors.

Abdul Jabbar Khan · Answer

@Darius Oglozath

Thanks for the response everyone. Of course the more the better but cash flow is highly adjustable with down payment, term, interest rate. There should be some ratio—- like if I bought a million dollar property and got $2k in rent I think everyone would agree that’s a bad deal.

Sylvia B. · Answer

Small town (2100 pop.) in MO

$400k here would buy a nice, large house on 60-80 acres. That's one reason we left CA in the 80's.

Waleed Asad · Answer

@Sylvia B. Hi Sylvia. What state do you invest in mostly? I'm in CA and houses here cost at least 400k and the rent would be no more than 2k a month.

Nathan Gesner · Answer

The 1% rule is a filter and should be used to quickly determine whether a property is worth further investigation or not. just because of property meets the 1% rule does not mean it is worth investing in, and just because of property does not meet the 1% rule does not automatically rule it out as a valid investment.

You also have to consider your goals. Are you looking for maximum growth? Security? Cash flow or appreciation?

Russell Brazil · Answer

Yield is a function of risk. The higher the yield, or the higher the ratio, the more risk the market sees in the asset and/or market. Theres no ideal ratio, it is just all a function of risk. High or low risk is neither bad or good, they are just probabilities of peojected outcomes.

Sylvia B. · Answer

We do use the 1% rule as a guideline, but we also run the numbers one each one we consider.

Some of our houses do not meet the rule, others greatly exceed it. We currently have 12 houses rented. Our average cost including rehab is just under $67k. Our average rent is currently $693/month. Generally speaking, our smaller, cheaper houses give us the biggest bang for the buck.

What is the proper rent to home value ratio?

What is the proper rent to home value ratio?

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