How much rent to charge?

HardDrive · 12-04-2005, 12:01 PM

My wife and I have been looking at propertys in our area. How much above your monthly costs should one aim for in terms of income?

I know there are a lot of variables involved, but give me a rough estimate.

If I buy a $250K duplex, put down 20%, the mortgage would be about $1200. Insurance, taxes....what would realistic rent be?

I am utterly ignorant, so don't be afraid to use very small words....

jorian · 12-04-2005, 12:11 PM

A quick scan of the classifieds showing similar accomadation will tell you what the market will bear. Breakeven is obviously the target you are looking for however, in my area of Vancouver this is not possible. I don't know what your area is like but I always use a 30% expense ratio (30% of gross rents) when calculating. Generally the nicer the unit is the less your expenses will be - but your acquisition cost will be higher. A low rent unit will be cheaper to buy but more expensive to maintain.

If you can get 1% of your purchase price per month in rent you will do well.

Brother · 12-04-2005, 01:24 PM

Most investors would like 8% or better return after expenses on a free and clear property. So in your case, it would be nice to get $20,000 after your expenses like taxes, utilities that you cover, and insurance.

So can you charge $833.33/month? You have to research the comps in the newspaper like previously mentioned.

If you can't, that just sucks. Real estate as great income producing investments is being bid too high and might be a thing of the past.

Are you planning on selling the property in a few years? If you are just speculating on the price appreciation, then who cares.

1973911s · 12-04-2005, 01:36 PM

Look to see what similar properties are renting for, and charge that price. If you can't find one, then find the one that is the most like yours, and adjust from there, fireplace +20, patio +20, etc.

You don't want to charge less than you can get as you will be bring the market down. Push rents in the neighborhood, everyone wins.

Michael

turbo6bar · 12-04-2005, 01:39 PM

$833 per month is not 8% CAP rate. 8% cap rate is the $20k/yr or $1650/mth before expenses, but not including mortgage. I generally take 75% of rent in my return calculations, so 8 cap rate = $2250 monthly rent.

Rent you get is equal to what the market will pay. I doubt you will find a deal that pencils out well.

I hate to be such a pessimist. The only profit in RE right now is appreciation, and there are signs it may be coming to an end. HardDrive, I can send you a few Excel spreadsheets that can help you run numbers for RE investments. Send me a PM.

In general, I like to see cash-on-cash return of 20-30% per year, and CAP rates of 10. However, on some properties, the appreciation is dragging the CAP rate down to 8, making selling and taking profits very enticing. CAP rate = value of property / income - expenses. Ignore the mortgage payment in this calculation.

Feel free to ask if this is confusing.
good luck,
jurgen

turbo6bar · 12-04-2005, 01:40 PM

Quote:

Originally posted by 1973911s
You don't want to charge less than you can get as you will be bring the market down. Push rents in the neighborhood, everyone wins.

Michael

I believe you deal with multi-family and SFR across the country, correct? Have you seen an upward pricing pressure in the non-bubble areas, or is it still flat?
jurgen

Brother · 12-04-2005, 01:44 PM

Quote:

Originally posted by turbo6bar
$833 per month is not 8% CAP rate. 8% cap rate is the $20k/yr or $1650/mth before expenses, but not including mortgage. I generally take 75% of rent in my return calculations, so 8 cap rate = $2250 monthly rent.

Rent you get is equal to what the market will pay. I doubt you will find a deal that pencils out well.

I hate to be such a pessimist. The only profit in RE right now is appreciation, and there are signs it may be coming to an end. HardDrive, I can send you a few Excel spreadsheets that can help you run numbers for RE investments. Send me a PM.

In general, I like to see cash-on-cash return of 20-30% per year, and CAP rates of 10. However, on some properties, the appreciation is dragging the CAP rate down to 8, making selling and taking profits very enticing. CAP rate = value of property / income - expenses. Ignore the mortgage payment in this calculation.

Feel free to ask if this is confusing.
good luck,
jurgen

I meant per unit. Thanks for clearing up the confusion.

I agree with everything Jurgen is saying. The only opportunities are inland. I'm hitting just above Jurgen's targets in Bossier City, LA, but I don't know for how long I can do that.

1973911s · 12-04-2005, 02:03 PM

Quote:

Originally posted by Brother

The only opportunities are inland. I'm hitting just above Jurgen's targets in Bossier City, LA, but I don't know for how long I can do that.

That is true, try finding something in California that works!

Michael

HardDrive · 12-04-2005, 02:07 PM

I am in Seattle.

I look at what people are asking for property, and I don't see how the rents will cover it.

Perhaps building is a better option?

HardDrive · 12-04-2005, 02:08 PM

Thank you for the responses.

Brother · 12-04-2005, 02:24 PM

Hold up! We can't let this thread die without blaming Bush or Baby-Boomers for something.

jorian · 12-04-2005, 02:30 PM

Unless you buy raw land on the cheap through something like a tax sale, building to rent on a small scale is worse.

motion · 12-04-2005, 02:44 PM

Folks, its still doable. There are areas out there that will give you modest cashflow on your rental property.

Here's what I'm working with in Albuquerque. Given today's market, I'm happy with the numbers.

SFR 3/2 2000 sq ft
Purchase price: $156,000
20% down
Loan: 6.875% for 30 years
Payment with prop taxes: $945
Rent: $1,100

Ya just have to find them

turbo6bar · 12-04-2005, 03:18 PM

Quote:

Originally posted by motion
SFR 3/2 2000 sq ft
Purchase price: $156,000
20% down
Loan: 6.875% for 30 years
Payment with prop taxes: $945
Rent: $1,100

Ya just have to find them

cap rate is 6.4, and you're cash flow negative, at best, but then again, if you can repeat Phoenix, you are gonna do fine.

HardDrive, I am selling some properties due to nice appreciation. I have no idea what to do with the proceeds. The bulk of funds will go into an Emigrant Direct savings account at 4%. There just isn't anything that gives a healthy risk vs reward ratio. The bull stock market is over 3 years old and looking peaky, RE market is definitely inflated, and the commodity market is covered with speculators.

My advice: Learn your market. Sit on your money until you know the time is right.

I know there are folks that think I'm crazy for sitting on cash, but I'm walking the talk. I know I will either lose out on some future gains, or prevent significant loss.

Brother, thanks for the clarification. You were absolutely right. I didn't notice it was a duplex. Your $833 number sounded too familiar.

motion · 12-04-2005, 07:29 PM

Jurgen, you don't like my numbers? For a young guy, you are damn conservative. Cmon, get out there and live a little!!!! 4% WTFFFFFFF???? BORRRRRINGGGGGGGG.

motion · 12-04-2005, 07:31 PM

Hey Jurgen, what do you think about this? Don't candy-coat anything. Tell me what you really think.

www.pointwide.com
www.sweetwaterventures.com

1973911s · 12-04-2005, 07:32 PM

Quote:

Originally posted by motion
Folks, its still doable. There are areas out there that will give you modest cashflow on your rental property.

Here's what I'm working with in Albuquerque. Given today's market, I'm happy with the numbers.

SFR 3/2 2000 sq ft
Purchase price: $156,000
20% down
Loan: 6.875% for 30 years
Payment with prop taxes: $945
Rent: $1,100

Ya just have to find them

Which part of Albuquerque? That seems a little low, I think we are getting high $900 for our 3/2 in an affordable community.

Michael

motion · 12-04-2005, 07:35 PM

Unser and the 40. You have stuff in BBQ, Michael? How long?

turbo6bar · 12-05-2005, 06:13 AM

Quote:

Originally posted by motion
Hey Jurgen, what do you think about this? Don't candy-coat anything. Tell me what you really think.

www.pointwide.com
www.sweetwaterventures.com

That's just the web site? You could get a web designer to do this for a one-time charge. It's not easy finding good tenants, so every advertising medium helps, particularly if some of your potential clients are transferring into NM. Of course, if you want fire-and-forget, Pointwide is there.

candy-coat? I'm a bloodthirsty landlord. There's no candy-coat! In fact, I argue there is no Santa Claus!

Jay Auskin · 12-05-2005, 03:03 PM

Quote:

Originally posted by HardDrive
I am in Seattle.

I look at what people are asking for property, and I don't see how the rents will cover it.

Perhaps building is a better option?

You're exactly right, your rents won't cover your mortgage, taxes, etc. I bought a condo 5 years ago at pre-const. pricing. It's gone up considerably. But, rents have gone down. So, every month, I take a loss on cash flow for this property. But, property values are still increasing. As long as that still happens at a good enough rate, I'll continue to rent. I also get tax advantages for a loss on my investment. So far, for me, it's working out ok. I'm guessing Seattle isn't too different than the Chicago market. As interest rates go up, and buying flattens out, rents will go up too.