% RATE To Support Rent - Posted by Littleguru

Posted by Brent_IL on October 15, 2003 at 17:03:04:

The current rates do allow many well-bought properties to cash-flow.

Market rent is set by supply and demand, not interest rates.

As an example, lately, lenders have made marginal loans because they don’t make money when the cash is sitting in overnight accounts. Just suppose that some bump in the economy accelerates the already increasing foreclosure rate. The banks can’t keep the properties, so they dump them by shorting to RE investors. Now, there are a lot of empty houses and apartment buildings. The former owners need housing, so they enter the rental market. There are more rentals available than there are qualified folks to fill them. Everyone wants to fill their buildings with good tenants, so landlords start offering incentives. Rents drift lower, or the cost of amenities rises.

Eventually, things get sorted out, but in the interim, though you have a 6% loan, your competition might have a free-and-clear property, so your house sits empty.

On the other hand, people will live on the street as a last resort. When the available supply is tight, they will make an ever increasing lease payment because we all have to reside someplace. In this case, one with a 12%APR will cover the mortgage.

For the record, I don?t think we?re headed for a freefall yet.

There are ratios of average rent to market value, but these are localized and vary with the type of rental. The ratio of apartment rent to unit cost is different that that of SFH rent to FMV.

Around here, in my experience only, SFH rents have ranged between .72 of 1% of market value to about .94 of 1% of market value during the past two decades. A single point reference is eight-tenths of one percent of value.

Using this ratio, you can look at pricing from the other side. If a house is renting at $800 a month, we?d need a good reason to pay more than $100,000 because it would be a variance to the norm.

% RATE To Support Rent - Posted by Littleguru

Posted by Littleguru on October 15, 2003 at 16:24:37:

Doesn’t the current interest rate control what market rent rates are. If rates are high market rents will be higher lower rates lower rent since landlord mortgage payment is lower.

Is their a general rule about what kind of rent rates one should be able to get on a house. Example 150k house me( the landlord) has a IR of 6% for 30 years. I should be able to rent it out for at least what a payment would be on a 7% 30 yr. loan. A little markup

If you have a good loan on a house low IR shouldn’t you always be able to rent it out or find a t/b at a higher IR giving you a positive cash flow? If not how would these SFH ever cashflow.

Don’t current interest rates on a good loan plus a little mark up = market rent?


Re: % RATE To Support Rent - Posted by Sean

Posted by Sean on October 17, 2003 at 07:24:43:

The MARKET doesn’t care what you as a landlord pay on your mortgage… they only pay what they are willing to pay. If your mortgage payment is so high you can’t get a tenant in without taking a monthly loss, that’s NOT the tenants problem or care.

Not all landlords have mortgages, not all landlords are paying bank rates on the private mortgages they have… What tenants are willing to pay dictates rents, morgage rates have no bearing. If you are trying to figure out what you should rent based on Mortgage rates… you probably need to get some more education before becoming a landlord.

Your 150k house will rent for about the same as other houses in that neighborhood of like kind that are currently rented, period.