Re: Why I Don't Like Cheap Properties

[Ndy Onyido]

Hi BP Nation,

I have always had this argument with folks around me who believe that rent to value ratio is a better metric than ROI for analyzing investment properties. The price-to-rent ratio is the ratio of residential real estate prices to the annual rents that can be earned from that real estate.

My argument is that rent to value or price to rent ratio as it is variously called by different schools of thought is deceptive; now don’t crucify me yet. By deception I mean that most sub grade neighborhoods are cheap properties and their rents are usually high and when you consider the price to rent ratio as a metric, its usually high….well on paper… But how much of this is realizable? Out of staters using this metric will be deluded into thinking that the property is a good deal.

I know I am not an expert yet on REI, but I was happy to read above post by Mike D'Arrigo on a blog today:

Although a number of experts on BP specialize on sub 30-40k properties and have made a good success out of it, Mike argues that it is a nightmare for out of staters and this should be a no-go area…

Read full article here:

http://www.investwithpinnacle.com/#!Why-I-Dont-Like-Cheap-Properties/cepd/5525afef0cf2aa18119295ff

Do you have a different opinion?

Let me hear your views.

Happy investing.