Profit margins on a rental property

[Tyler Dunlap]

Hi all, I'm new here and new to the industry. I have been scouting out some properties in the Salt Lake City. Basically, my question is what is a good profit margin for a rental home? I have found houses that I can buy for 800/mo and rent for 1200/mo. Is this a good deal? Should I pursue this? I know about the whole 50% rule but I can't find anything that comes close to that. Any input is greatly appreciated!

[Robert Leonard]

@Tyler Dunlap now you just revealed one of the perils of asking questions about what to expect to pay for properties to a national audience.  Look at the locations of where the responses you received came from.  None of them are anywhere near Utah.  Have you ever heard the expression, "real estate is local?"  I'm here to tell you, it is extremely local.  To a lower level than zip codes in cities that have more than one zip code.  It usually is local down to the subdivision and sometimes street to street within subdivisions.

I think you also need to revisit the 50% rule.  It pertains to estimating operating costs and has no relation to value as your use of it implies.

There is no way to analyze your monthly payment vs rent equation to know if you have a good deal. You have to analyze the overall numbers of the deal to know whether or not its a good deal. If you are paying 800/month for five years or for 20 years makes a big difference. What is the FMV and condition of the property? What would another informed buyer be willing to pay for the property? Does it need any repairs and if so, how much? There's so much more to the equation, that you need to give consideration to that is beyond monthly payment vs rent to analyze a property's potential as an investment.

You might want to try something like this:

http://beta.biggerpockets.com/files/user/brandonatbp/file/brandon-turners-spreadsheet---rental-flip-hybrid-calculator