Mama Geek Posted August 29, 2012 Share Posted August 29, 2012 What is the rule of thumb if you buy a house for $100,000 what is the monthly rental income you should get out of it? Quote Link to comment Share on other sites More sharing options...
mom2one Posted August 29, 2012 Share Posted August 29, 2012 We have a rental property that we were thinking about selling. I called a realtor and he said that we should wait until the lease was closer to being up for renewal because we weren't charging enough rent. We bought the house for $140,000 in 2004, it's now worth about $125,000, and we are charging $1200/month rent. The realtor said that a landlord with lots of rental properties would want $1200 (12%) for every $100,000 in property value, so he suggested we wait until we could bump the rent up. HTH. Quote Link to comment Share on other sites More sharing options...
Annie G Posted August 29, 2012 Share Posted August 29, 2012 Back when we started, the going rate was 1% per month. So a $100,000 home would rent for $1000 a month. I think the climate has changed so much now that it depends more on your local area. Dd is renting her house and not able to get the full 1%, but a friend near us is routinely able to rent his homes for 1.5% of the value. The difference here might be that dd is renting what was their primary home until they had to relocate and dear friend bought his homes as rentals- lower value homes but able to command more rent. There are so many factors that can play into it. But way back when, we always started with 1%. Quote Link to comment Share on other sites More sharing options...
Mama Geek Posted August 29, 2012 Author Share Posted August 29, 2012 I realize that what things will rent for is very different from place to place. We have discussed buying a foreclosed house next to ours and fixing it up. The house is ok, but it is a lake front 1 acre lot and a nice one. The question becomes how much do we need to get in rent to really make it worth while. Quote Link to comment Share on other sites More sharing options...
Riverland Posted August 29, 2012 Share Posted August 29, 2012 Check the newspaper/craigslist and drive by other rentals in the area. That is how you can determine its true market value. Quote Link to comment Share on other sites More sharing options...
Happy Posted August 29, 2012 Share Posted August 29, 2012 I realize that what things will rent for is very different from place to place. We have discussed buying a foreclosed house next to ours and fixing it up. The house is ok, but it is a lake front 1 acre lot and a nice one. The question becomes how much do we need to get in rent to really make it worth while. When we rented our home for a time while we were out of the country, we wanted enough out of it to make all the expenses, plus a couple of hundred we could put in savings as a cushion. If I were purchasing a property as a rental, I'd want my expenses paid--mortgage, insurance, taxes, and a percentage for upkeep. Plus a bit to be paid directly to the mortgage principle. That's assuming a healthy savings fund for unexpected maintenance like replacing the AC. My goal would be to pay off the mortgage as quickly as possible so I have true income from the rental. You can call a realtor and get comparables (home size, age, location) for your general area and use that knowledge to set your prices. Quote Link to comment Share on other sites More sharing options...
Miss Marple Posted August 29, 2012 Share Posted August 29, 2012 I think the best way to approach it is to determine what you need to cover your bills (mortgage if any, insurance, property taxes, utilities, etc) then see what similar type homes are renting for in the nearby marketplace. Then price your home accordingly. FWIW, we own a small 2 bedroom 1940s home - all appliances, wiring, plumbing, paint, carpet have been updated, but the kitchen is dated. It is in the older established part of town. We rent it for $500 per month. We could get $600 now, but the young lady has been with us for 5 years and NEVER bothers us. Her dad does repairs :) The market fluctuates...it has been as low as $350. Our home appraises for just around $80,000 Quote Link to comment Share on other sites More sharing options...
Sneezyone Posted August 29, 2012 Share Posted August 29, 2012 (edited) You can't base your rent on what you paid for for the home. We paid $265K for our house and rent it for $1500/mo. If I were to use the 1% figure we should charge waaaay more in rent than we do but the market wont support that. We bought our house in '07 (it was new) and rent it for the mortgage payment (includes insurance) +$300 which we put toward principal. We could charge a little more in rent but we prefer tenants who can comfortably afford the payment. We can cover any incidental repair expenses ourselves but might buy a home warranty/repair policy next year if we go overseas. The home will be paid off in under 15 years and we can either roll the proceeds into our dream house or keep it as an income property. Edited August 29, 2012 by Sneezyone Quote Link to comment Share on other sites More sharing options...
Mama Geek Posted August 29, 2012 Author Share Posted August 29, 2012 You can't base your rent on what you paid for for the home. We paid $265K for our house and rent it for $1500/mo. If I were to use the 1% figure we should charge waaaay more in rent than we do but the market wont support that. We bought our house in '07 (it was new) and rent it for the mortgage payment (includes insurance) +$300 which we put toward principal. We could charge a little more in rent but we prefer tenants who can comfortably afford the payment. We can cover any incidental repair expenses ourselves but might buy a home warranty/repair policy next year if we go overseas. The home will be paid off in under 15 years and we can either roll the proceeds into our dream house or keep it as an income property. We haven't bought the house that we are talking about. We are considering buying it, so yes I want to look at what is reasonable on average to get on a return on rental property. If we can't make reasonable money on it we won't buy it. I am just trying to figure out what is reasonable. I can find the information on the rental market in our area, I am looking at is this reasonable or would there be something better to invest in. Quote Link to comment Share on other sites More sharing options...
KatieJ Posted August 29, 2012 Share Posted August 29, 2012 We haven't bought the house that we are talking about. We are considering buying it, so yes I want to look at what is reasonable on average to get on a return on rental property. If we can't make reasonable money on it we won't buy it. I am just trying to figure out what is reasonable. I can find the information on the rental market in our area, I am looking at is this reasonable or would there be something better to invest in. As other posters have said, you need to first figure out what you insurance will be (it will be a business type of policy, not a homeowners) and taxes ( non homesteading taxes are way more than if you actually live in the home) before you can begin to figure out a montly rental fee. and yes, check the going rates for rental homes in your area. You can't out price the market. Quote Link to comment Share on other sites More sharing options...
Sneezyone Posted August 29, 2012 Share Posted August 29, 2012 I guess what I'm suggesting is that I'd approach it in the opposite way...what does the average 3BR, 2BA home in your area rent for in good condition and work backward to find a home that I could purchase that would allow for a reasonable profit. Quote Link to comment Share on other sites More sharing options...
Trilliums Posted August 29, 2012 Share Posted August 29, 2012 This will vary widely depending on your location.. Our property manager figures rental price first based on square footage and then adjusts for amenities or undesirables in the rental property. So, you could look into the going rates for houses of a similar square footage to give you a rough estimate of the expected rental price. I would not rely too much on Craigslist ads though as many of them are bogus, especially in higher density population areas. Check websites from real estate cos and property management firms. Quote Link to comment Share on other sites More sharing options...
Carol in Cal. Posted August 29, 2012 Share Posted August 29, 2012 It depends on what you want the property for in the long run, and whether or not you have reason to expect its value to increase. If you are thinking of living there someday, and want a toehold in the real estate market before that time in case it becomes unaffordable, you might put up with a low return on your investment to accomplish that. If you are thinking of selling down the road, assessing the longterm capital growth in addition to your rental income just makes sense. Around here, anyway, people who are serious about investing for rental profit usually buy 4 or more unit properties, or trade up to them as quickly as possible. That is where economies of scale start to kick in, and also where the local market rental rates dominate the price of the properties. But this varies a great deal from location to location. Quote Link to comment Share on other sites More sharing options...
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