Posted by Bill Gatten on June 13, 2000 at 21:00:46:
In mot areas, rental rates are a reciprocal function of the median income tax range in most any geographical area. In OC in particular, most folks are in a 1/3rd tax bracket (28% Fed and 6% state) or better. This means that if their payment is, say, $1,000, they can be expected to charge rent of about $750-$850 and still break even. Therefore, consider the rental rate for SFRS where you are to be about 0.75 to 0.85% of the property’s Fair Market Value (more if highly desirable area; a little lower if ordinary area). When the location is noticeably less desirable, that usually means the properties are worth less and most of the people there are in a lower tax bracket. Therefore, one might use 0.8% to 0.95% for smaller homes and condos (i.e., since local income tax brackets are lower, the people there have to charge more rent to break even, considering their smaller tax breaks). For the same reason, though, when income tax brackets a are higher (32% Fed and 9% state), then the rents are far less–percentage wise (e.g., a million dollar home would rent for perhaps $6,000 to $5,000 to $6,500 per month…0.5% to 0.65%).
Do notice though that these figures are subject to fluctuations by various other influences: Rental property shortage or abundance, over or under building in an area, seasonality, proximity to recreation areas, etc.
For some examples, in Florida we see FM Rents at about 1.0 to 1.2% in most middle class area areas: in So. Cal. 0.75%; and in the Midwest up to 1.3 and 1.5% on homes valued at, say, $50K to 75K.
Now your homework. Memorize this"
“Fair Market Rents are a reciprocal function of the median income tax range in any given geographical area, although impacted negatively or positively by various extraneous variables: which factors must be taken into consideration as well.”