Pricing Strategy - Look at these #'s

[Anthony C]

Based on numbers below only, considering the house is a small 3/1.5 cape, with very little to no updates since it's purchase in '97... where would you highly experienced SFH investors structure your bids? I know there are a lot of assumptions to make, but just assume the house needs a little TLC (landscape,paint,carpet,etc) to get in in rental condition.. i'm just trying to learn how you guys are getting deals these days. This is in a great neighborhood in central NJ, desirable area... but prices still seem high. I think if i got into this house, it's value would continue to drop..

is it just not a good time to purchase?

Price History
Date Description Price
02/22/2011 Price change * $349,900
12/11/2010 Listed for Sale * $389,000
10/13/1999 Sold $270,000

I would want to bid no more than $300k for this house, there's such a wide spread between buyers/sellers in this market it seems impossible for me to get started..
-AC

[Mike McKinzie]

Anthony
I understand that you are looking in a neighborhood/area that has higher priced houses that bring in lower rents. We face the same thing in Southern California. I could sell my personal residence for $400,000 or more today, and rent it for between $2000 and $2500 a month. (Luckily, my parents bought it for $15,000 in 1960) An investor would not be wise to buy it for $400,000 and rent it for $2,500 a month.

Let's look at another business that has some similarities to real estate rentals, the Car Rental Business. When you go to Enterprise, Hertz, Avis, etc...., do you see Mercedes Benz, Audi's, Volvo's or Bentley's? Or do you see Ford Escorts and Taurus's, Chevrolet Cobalts and Impalas, and Chyrsler Sebrings? While there is a small niche of Car Rental Companies that deal in High End cars, they charge $500 a day and up, it is not the mainstay of the car rental business.

Real Estate Rentals are the same way. While you don't have to invest in the very low end unless that it your thing, you do need to stick to what I call "lower, middle class" areas to make a decent investment.

I bought five rentals last year, in Texas, Oklahoma and Arizona. I look for around 1% of the purchase price as rent. While this gives me only a 6% to 8% return, it is the type of home I feel comfortable owning. To relate it to the car business, it isn't a Yugo and it isn't a Mercedes. It is just a "plain vanilla" Ford or Chevy.