Houston, TX · Member since 2013 · 30 posts · 5 votes
I realize Houston is a huge market, but what are some % of value ranges that fellow investors are seeing for rental properties? I'm trying not to go by a hard and fast 1% or 2% rule as it really depends on running the numbers diligently and seeing if it works. But is there a ballpark range I can go by? Also, if you purchase a home at below market value, do you figure the rent ranges based on the purchase price or the true market or ARV? Thanks.
I'm campaigning to get the terminology changed from "x% rule" to "x% guideline." :)
Once you have a 30 second evaluation spreadsheet ready to go, I'd look at anything over 1%. The higher that % guideline gets, the higher the chances it will make you money in the future.
Rent has nothing to do with ARV directly. Indirectly rents will be higher in a neighborhood with homes that are worth more. Thus the few fixers left will translate into high ARV and higher rents.
Houston, TX · Member since 2013 · 30 posts · 5 votes
11y
Thanks Aaron. I realize that the rent number doesn't relate directly to ARV, but when doing a gross estimate, if I can buy a property, say at $120k that has an ARV/market value of $200k, do I look to the lower end or higher end when using the guideline? Or it's more dependent on the other rents in that neighborhood for similar properties?
Investor · Houston, TX · Member since 2015 · 60 posts · 9 votes
11y
Always use purchase price and the cost to put the asset in use. I always convert the monthly return to an annual capitalization rate. This allows you to compare to other investments. The lower demand markets, ie older homes or less desirable areas, should produce a higher return. The opposite of the spectrum is high demand areas and they produce lower returns so adjust accordingly. The question is would you rather have greater returns now or speculate on appreciation in the future.
Investor · Chicago, IL · Member since 2015 · 677 posts · 309 votes
11y
You always compare what something will cost you versus the income it actually will produce. The ARV may indicate a gain but its unrealized and will not be realized unless you intend to sell soon. It also depends on your strategy and goals. Are you buying and holding or are you flipping? You numbers suggest you are buying to hold.