JackThe simple 1% rule says sell. $2.8M value means a MINIMUM of $28,000 a month rent. You're talking 1/3rd that. Then say you come back in 2 years to find that the renters opened their house up to their family and friends for never ending parties and it needs a tremendous amount of work.
Absolutely sell.
I know you quote the "1% rule" ie 1% of home value per month.
I would reckon there's very few places in America that would work. Those "rules" were cut when inflation was 8% and interest rates were 10%.
If you were some area with no long term housing price increase, maybe not even inflation, Buffalo or Detroit etc - then maybe you would get those kinds of returns.
If you look at the yields (Cap Rates in America) on commercial Real Estate you might see that in industrial units. Residential apartments, professionally managed buildings with one owner, you might see 5% Cap Rate?
So 6%-8% for the sort of building small landlords own? And in a HCOL, I would guess 4-5%?
On your "rule" you'd never buy anything.
Prime Central London for example, you are 3% or below. If it is a bubble, it hasn't popped in 30 years. The rates were below 2%, but then there were big increases in rents, so probably back up to 3% or so.
The real driver is the "spread" between cap rates and cost of financing. So if your cap rate exceeds your mortgage rate, your equity will earn a return.
Statistics: Posted by Valuethinker — Tue Nov 19, 2024 4:00 am