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Originally posted by Wayne at Pelican Parts
Umm, isn't that high? 1% per month of the value of the property would be a 12% annual return. So, if a place cost $2K a month, that would value it at $200K in the market? In reality, I think the returns on rents are traditionally much lower than that - like 3-4%, but I don't have any graphs or numbers to back me up.
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1% rent per month is actually reasonable in many areas. I'm inclined to believe CA landlords are accustomed to lower percentages, but this is juiced by greater appreciation rates. The 12% gross is reduced by expenses, so it isn't ridiculous. If I got a 3-4% return on my rentals, I would have shot myself a long time ago.
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A declining market makes the value of a downpayment worth much more
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In addition, one can always refi from a high rate to a low rate, but lenders are not receptive to requests asking for an arbitrary reduction in principal.
Also, if mortgage interest is tax deductible, give me the high rate and low principal.