valuation question for a single family residence

[Jeff Zatlin]

I'm interested in buying a single family home as a rental property. Projected rental income would be $850/mo gross. Based on the 2% rule, the purchase price shouldn't exceed $42,500. Using the 50% rule, the price should be $50k. SFR's are offered based on comps, though, and this one is offered at 74k. So I'm trying to understand why the comps would be so high, or perhaps due to the fact that the numbers are pretty low perhaps the rules become a little less functional? Or is this just a no-brainer and I should move on?

[Robert Leonard]

@Jeff Zatlin it looks like you are getting these rules of thumb confused and misapplying them. The 2% rule is not used to determine a property value, but as a screening tool when looking to buy to say, if it rents for more than 2% of what you can buy it for, you should definitely look closer at the details.

The 50% rule is used to quickly estimate the expenses on a property in relation to gross rents, not for valuation purposes. These so called rules are really more like goals or targets, not really rules unless you choose to adopt them as a way to select your deals.

For SFR, the recent sold comps are how Fair Market Value is determined. This may or may not be a good deal. What is the estimated value based on the comps? What is the condition of the property? How would you pay for it if you bought it, cash or financed? Would you have equity on it on day one if you bought it at that price and how much? There are a lot of factors that you need to learn and understand before you jump in.