Was trying to calculate if a house on sale for $200K with 1300 in rental income would make sense. Basic calculation showed it possibly will- The Buy to rent Ratio is 13 a little less than break even point.
The attached excel sheet contains ratio for $200K and $500K house – http://spreadsheets.google.com/ccc?key=pXHHXgTvPZ5dqM-OuZXL1XA
Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.
Courtesy : http://www.nytimes.com/2008/05/28/business/28leonhardt.html
Also the big picture gives some interesting food for thought http://bigpicture.typepad.com/comments/2008/05/housing-price-t.html
Now the interesting question is that in the current financial market does putting $200K make sense or will the housing prices continue to fall further …
Case Study : Hayward, CA
- Rental Prices Jan 2008
- rent.com Average Rental price $15000 (2bed/2bath)
- craigslist.com Average Rental price $1250 to $1700 (2bed/2bath) mean ~1400
Other things to look into
- proximity to Bart
Chronicles of a runner! 
January 19, 2009 at 1:29 pm
[…] sepoyagent wrote an interesting post today onHere’s a quick excerpt Was trying to calculate if a house on sale for $200K with 1300 in rental income would make sense. Basic calculation showed it possibly will- The Buy to rent Ratio is 13 a little less than break even point. The attached excel sheet contains ratio for $200K and $500K house – http://spreadsheets.google.com/ccc?key=pXHHXgTvPZ5dqM-OuZXL1XA Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006. Courtesy : http://www.nytimes.com/2008/05/28/business/28leonhardt.html Also the big picture gives some interesting food for thought http://bigpicture.typepad.com/comments/2008/05/housing-price-t.html Now the interesting question is that in the current financial market does putting $200K make sense or will the housing prices continue to fall further … […]
January 20, 2009 at 12:23 am
one of the first principles of investing is that you have to compensate me for moving from liquidity to illiquidity. A house is one of the most illiquid investments there is, with high transaction costs to boot. So, all else held equal, buying a house is not sensible unless there is either (a) a significant advantage of the rent-buy ration (i.e. renting is significantly more expensive); (b) housing is appreciating at a significantly faster rate than other investments. Neither is the case
February 20, 2009 at 9:13 am
Great information as usual Vivek. More people need to read your buying and renting tips before making drastic and often stupid decisions.