Posted by Karl Grube on March 20, 1999 at 18:49:36:
I have always determined rents based upon the annual percentage return I desired. For example, $100,000 rental house 7% return after taxes. YOU do the math! Karl Grube, Ann Arbor, MI
Fiar Market Rental Values - Posted by Bill Gatten
Posted by Bill Gatten on March 13, 1999 at 16:05:54:
Recent ongoing discussions with some CRE folks, have been centered around standard Rental Factors for SFR’s in specific locales (i.e., How much Rent should I charge?). I thought it might be interesting to take a poll and see if we can come up with some reliable (Rule of Thumb) calculations. If you have any insight or input on this, let me know and I’ll be happy to compile the data and post it for all to see.
For example: In California, Hawaii and several other states, FMV Rents for Single Family Residences tend to run between 0.55 and 1.0 percent of a property’s Fair Market Value, depending upon the overall income level of the area. This is assumed (presumed?) to be true because FMV Rents reflect the median income tax range in a given area, offset by availability and competition: e.g., in order to be maximally competitive, you first calculate the cash-value of the income tax deduction on your property’s mortgage payment (and prop. tax). Then the higher your tax base, the lower the rent needs to be in order to break-even and remain competitive (and reduce your vacancy factor as much as possible). Therefore in Beverly, Ca. hills rents are much cheaper percentage-wise than in, poorer areas (Salinas, Inland Empire, etc.) where median income tax ranges are lower. In other words, a million-dollar house in BH would rent for say $5,500 (5.5%) per month, whereas a $100,000 house in a low middle-income area would rent for $750(7.5%). In a low-income area (21% Federal tax) a $50K house would rent for $500 (1%). That is, when the tax break is less, you have to charge more rent in order to break even.
To do it properly, here’s what we’ll need (for the moment we’ll exclude condos, mobile homes, seasonal and resort properties, etc.):
- General income or tax range of the area (e.g., Less than $30K, $30K-$40K, or $50-$100K+, etc.)
- Recent history of the RE market for the area (up, down or stable… for how long)
- Competition in rentals (lots of them a few of them, market glutted, very few, not enough, etc.)
- General economic trends (lots of unemployment, reasonable employment, improving industry, declining industry, etc.)
- Median price of a home for the area
- Median rents relative to the home’s value
Be as general as possible (e.g., for the wealthier parts of Texas, vs. the middle and poorer parts, etc.)
Bill