Monthly Rent To Purchase Price Ratio
hi all -
i have been buying some rentals, and i am trying to keep my monthly rent to purchase price ratio to 1%. for instance, my last purchase was for $175,000 and the signed lease for 1 year was $1750 a month. it needs about $2k worth of deferred maintenance, but according to my spreadsheet, im getting a pretty nice return on my 25% downpayment.
my primary goal for these first coupe of units is extremely solid cash flow.
can anyone comment on the 1% ratio that i described? first of all, is that a meaningful relationship between those two numbers? and second of all, if it is a good ratio, is the 1% a good number?
finally, is this the right forum? i didnt see another forum where this question might be more appropriately placed.
wups.... missed the landlord forum. silly me.
Use any ratio as a rule of thumb for passing on properties if the ratio is not met. If the ration passes then you need to do additional analysis. It sounds like that is what you are doing.
The 1% ratio rule that you quoted will likely give you some good properties to look at if you use it as a screening tool. Keep in mind that the largest uncertainty comes from maintenance costs. Your other major costs such as taxes, insurance and debt service you should know quite accurately.