Rental vs PITI -new investor question. - Posted by Franklin

Posted by Craig (IL) on August 30, 2003 at 20:09:07:

When house proices are appreciating quickly, rental rates tend to lag behind, far behind. Thus, it’s often hard to find properties that will cash flow as rentals without a significant downpayment. Your experience is not singular, many people find the same thing.

Rental vs PITI -new investor question. - Posted by Franklin

Posted by Franklin on August 30, 2003 at 16:20:21:

I live in Denver, Colorado area and I’ve been watching rental prices vs PITI costs for investment properties and in general it seems that on most homes, PITI here is significantly more than the rental income possible.

For example, a $150K house might rent out for $650 - $750 while PITI on a $120K loan (80%) at 6 3/4% is closer to $990.

I’m wondering if this is pretty normal or abnormal in your experience. Seems to me that you’d have to be buying income properties at about 60% of value to make positive cash flows?

Incidentally, $150K is a fairly cheap house in Denver area with $278K being more of an average house.

Thanks for replies!

Re: Rental vs PITI -new investor question. - Posted by Brad (CA)

Posted by Brad (CA) on August 31, 2003 at 02:39:43:

If the cost of owning a home (PITI) is about the same as renting a home (rent payment), then it would stand to reason that more renters would buy houses (especially in areas where people want to live), thus pushing prices higher widening the gap between prices and rent.

In a desireable area (where people want to live), home prices are going to be relatively high as compared to rents. In those areas, appreciation will happen faster while rents will not rise at the same pace.

In lesser desireable areas, home prices tend to stay at the lower range where rental properties may cashflow better, although appreciation may lag. SO, there are pros and cons to both areas and it depends on what your goals are. Best-case scenario would be to get a good deal on a property within a deireable area, then you could get good rents and appreciation.

If what you want is cashflow, then you look at the less expensive areas. If you want appreciation, you may want to focus on more desireable areas.

If you want both appreciation and cashflow than you either get good at finding/creating deals in desireable areas or you use more of a downpayment (traditional way).

This is only meant to be very general. I know there are marginal areas that are still relatively low priced where people want to live.

Either way you may also want to keep intune with market timingas Robert Campbell writes about. That might help to maximize your appreciation in either area.

Re: Rental vs PITI -new investor question. - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 30, 2003 at 20:39:27:


In general, the higher the value of the home, the lower the ratio of rent to the purchase value. The best rentals are at the lowest prices.

I recommend looking for properties at under $70K price. If you can’t find them in SFR, check condoes. If not there, check other parts of the country. You might also want to consider multiple unit properties. They generally have a better cash flow than do SFRs.

You might look in Cheyenne, what are prices like there? I know that North Platte was cheap the last time I looked.

Good InvestingRon Starr*******