Purchase price to rental income ratio

2 Replies

@Lau Jacob this metric is really only a good screening tool. For instance, one property may meet the 2% rule (monthly rents = 2% of purchase price), but the owner may be paying a lot of the utilities. Another property might be 1.5% but be set up correctly so that the owner is paying very few utilities. 

What you will find is that this tool is a good screening tool once you get to know what is normal for your area. It allows you to see something that pops out because of a significant difference from the rest of the properties in your marekt. For instance, in Berwyn where I have been investing, a lot of small multi units are trading at 1% to 1.2%. The really good deals end up trading at 1.5 to 1.6%. In some areas of the country, people would tell you this is not a good enough rent to purchase price ratio, but rents in this area are sky rocketing ($1250 for an average 2 bedroom). 

Thank you sir for taking your time to reply much appreciated! I will look at this and see if I can apply it accordingly the market here in Miami is tough and maybe tougher for a newbie. I may need to do out of state in order to grow.